Gold steadies below $4,350 as surging yields offset support from Fed rate-hold bets

Gold prices stabilized around $4,335 on Wednesday, after initially dropping from a June peak near $4,450 during early Asian trading hours. This decline was attributed to surging US Treasury yields, which reached their highest levels in decades, making non-yielding gold less attractive. The 30-year bond yields in the US hit a level not seen since 2007, while expectations of a potential Bank of Japan rate hike pushed 10-year borrowing costs to a 30-year high.

Europe also saw high yields, with Germany's 10-year Bund yield reaching a three-decade high and France's yields at their highest since 2008. Additionally, escalating tensions between the US and Iran, coupled with uncertainties surrounding the Strait of Hormuz, contributed to inflation concerns that hampered the appeal of gold. US President Donald Trump confirmed that no diplomatic talks with Iran are currently ongoing or planned.

Analyst Peter Grant stated that the steepening of the yield curve acts as a headwind for gold, while higher oil prices also play a role in today's weakness. Conversely, weaker US inflation data has led investors to lower expectations of a Federal Reserve rate hike, potentially dragging the US Dollar lower and supporting the price of the USD-denominated commodity.

At the moment, the market expects a September quarter-point hike to be a near-65% chance of a hold, following softer consumer price inflation and weaker retail sales. Despite the headwinds from higher rates, gold remains a popular hedge against inflation and depreciating currencies, with central banks holding the largest shares.

In 2022, central banks added 1,136 tonnes of gold, the highest yearly purchase since records began. Gold's price is influenced by various factors, including geopolitical instability, recession fears, and the behavior of the US Dollar, which acts as a major safe-haven asset and determines the yellow metal's value.