Gold slides as US yields surge, keeping $4,100 out of reach

Gold prices declined nearly 1.50% on Friday following the US Dollar's recovery, which pushed the Greenback to a 30-day low before stabilizing, according to the US Dollar Index (DXY). The XAU/USD traded at $4,045 and is expected to conclude the week with losses exceeding 0.11%, failing to break the $4,100 mark. Meanwhile, the DXY, which measures the dollar's value against six currencies, dipped by 0.05% to 99.91, yet failed to offer assistance to Gold prices as US Treasury yields are surging.

The 10-year Treasury note yields 4.745%, up almost seven and a half basis points, as investors ponder if the Federal Reserve (Fed) will raise rates to curb inflation. Economic growth in Q2 2025 was softer than anticipated, with a quarter-over-quarter (QoQ) growth of 1.5% compared to the projected 2.1%. The Core Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation gauge, increased to 3.3% year-over-year (YoY) from 3.4%.

Three Federal Open Market Committee (FOMC) members who voted for rate hikes explained their reasons: Lorie Logan from the Dallas Fed mentioned increasing inflation risks favoring rate hikes, Beth Hammack from the Cleveland Fed stated the policy rate is insufficient, and Neel Kashkari from the Minneapolis Fed preferred a gradual approach over "bolder actions."

Money markets adjusted their hawkish bets after the July meeting, with a reduced probability of a September rate hike from nearly 60% to 31%, and a near 70% chance of a hold. US economic data indicated that consumer sentiment improved in July, reaching 55.2, while inflation expectations remained unchanged at 4.2% for a one-year horizon and 3.3% for five years.

The Gulf War's escalation adds geopolitical tension to the financial markets, supporting oil prices above $84.00 per barrel. Gold's price dropped steadily after two days of strong gains, falling below the $4,100 level. The next support is at the July 24 low of $4,022, followed by the psychologically important $4,000 level and the June 17 daily low of $3,959.

For Gold to recover, buyers must reclaim $4,100 before approaching the July 22 high of $4,165, which could test the 50-day Simple Moving Average at $4,185. The July 6 peak at $4,202 represents the next resistance level. Historically, Gold has been used as a store of value and medium of exchange. Today, it serves as a safe-haven asset during turbulent times, often purchased by central banks to fortify their currencies.

Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, the highest since records began. Gold has an inverse relationship with the US Dollar and US Treasuries, inversely correlates with risk assets, and can be influenced by geopolitical events, recession fears, and interest rate changes.