Gold Prices Move Lower As Treasury Yields Bounce

Gold futures lost ground Wednesday, struggling to hold above the $1,800-an-ounce threshold as U.S. Treasury yields continued to bounce off five-month lows, dulling demand for the precious metal.

“Gold remains under the mercy of a stronger dollar, while a rebound in U.S. Treasury yields has dampened the allure of the zero-yielding metal,” Lukman Otunuga, manager, market analysis at FXTM, told MarketWatch.

Although prices dipped “marginally below” the psychological $1,800 level during Wednesday’s trading, “gold could still draw support amid a global surge in coronavirus cases,” he said.

“Should prices linger below $1,800 for too long, bears may steal back control with the next key level of interest found at $1,760,” he said, but if prices can push back above $1,800, “gold has the potential to retest $1,825, which is just below the 200-day simple moving average.”

Gold for August delivery GC00, -0.45% GCQ21, -0.45% fell $6.80, or 0.4%, to $1,804.60 an ounce on Comex after touching a low at $1,794.30. September silver SIU21, 1.02% tacked on 27 cents, or 1.1%, to nearly $25.27 an ounce, after falling 0.6% on Tuesday.

“Gold prices are unwilling to stay below the 1,800 price level as bulls are trying their best to win this battle,” said Naeem Aslam, chief market analyst at AvaTrade in a market update.

“The dollar strength is the major story here, and traders believe that next week the [Federal Reserve] may be announcing some hawkish commentary about the future path of their monetary policy,” he said.

The central bank will announce it’s decision on monetary policy on July 28. So far this week, the ICE U.S. Dollar Index DXY, -0.18% has traded around 0.2% higher.

“Despite the fact that the market could hear some hawkish commentary from the Fed, the gold price is far from its recent low of $1,685, which is “very encouraging for the bulls,” said Aslam. Gold futures were last around that level in late March.

“During the upcoming hawkish monetary policy period, gold prices may not see extensive sell [off] like the one the gold price experienced back in 2012 when the Fed started to wind down their monetary policy,” he said. 

Meanwhile, the yield on the 10-year Treasury note TMUBMUSD10Y, 1.298%, which dipped to a five-month low on Monday, continued to rebound, rising 7 basis points to 1.276%. Higher bond yields raise the opportunity cost of holding assets that don’t offer yields.

That said, ‘the previous much more pronounced decline in yields had hardly affected the gold price at all,” noted analysts at Commerzbank, in a note.

“For now at least, the fact that yields are still at absurdly low levels, especially by comparison with current inflation and inflation expectations, and that real yields based on inflation expectations are still well below -1%, appears not to be playing any role,” they said.

Also on Comex Wednesday, September copper HGU21, 0.26% tacked on 0.2% to $4.27 a pound. October platinum PLV21, 0.95% rose 0.7% to $1,072.80 an ounce and September palladium PAU21, +0.21% traded at $2,667 an ounce, up 1%. By Market

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