Gold buckles as 5% yields and Fed hawks take control
Gold sank by over 1.5% during the North American session on Wednesday as investors grew confident that the Federal Reserve (Fed) would raise rates at the October meeting. That confidence stems from hawkish remarks made by several officials.
Gold experienced a decline of more than 1.5% during the North American trading session on Wednesday as investors grew increasingly confident in the Federal Reserve's plans to raise interest rates at their October meeting. This optimism was fueled by hawkish statements from several officials. The price of gold reached $4,285, marking a high of $4,369 during the day.
Middle Eastern developments initially pushed US oil prices close to $90, but a potential ban on diesel exports, as reported by Politico, caused crude prices to surge over 1.5% to $91.42 per barrel. As a result, WTI futures dipped, while the US dollar remained supported. The US Dollar Index (DXY) rose by 0.7% to 101.22, negatively impacting the value of gold.
Concerns over the US-Iran conflict eased after a senior Iranian official hinted at reviewing the U.S. response to their proposal to cease hostilities. After the previous Fed rate hike of 25 basis points to 5.12% last Wednesday, analysts noted that a majority of officials anticipated another increase by the end of the year, driven by persistent inflation above the Fed's 2% target.
Key Fed officials highlighted inflation concerns in their post-meeting statements, with most acknowledging the need for further rate hikes. Money market predictions suggest an increased likelihood of a Fed rate hike at the upcoming October meeting, with odds now at 66%, up from 52%. As a result, US 10-year Treasury yields surged by 15 basis points.
Flash Manufacturing and Services PMIs both exceeded expectations, indicating robust economic growth. Fed officials Beth Hammack and Anna Paulson are set to deliver speeches on upcoming economic data, while jobless claims data will also be released. Gold failed to break above the 'bullish wedge' formed by the 100-day and 50-day Simple Moving Averages (SMAs) at $4,313 and $4,306, respectively, and subsequently fell below both levels, extending its decline below $4,300.
Momentum indicated a bearish sentiment, with the Relative Strength Index (RSI) below its neutral 50 level, signaling growing selling pressure. Despite the mixed market structure, gold's downtrend persisted. For a potential reversal, gold must break above its September 16 low of $4,235, followed by the July 6 high-turned-support at $4,202 and the July 29 pivot low at $3,996.
A break above the 'bullish wedge' top trendline around $4,365-$4,370 could set the stage for a push towards $4,400. Historically, gold has been used as a store of value, a medium of exchange, and a hedge against inflation, currency depreciation, and geopolitical instability. Central banks are the largest holders of gold, often diversifying their reserves to protect their economies in times of crisis.
The inverse relationship between gold and the US Dollar underscores the metal's appeal as a safe-haven asset, particularly during periods of dollar weakness or global uncertainty.
Written by urgent.news from FXStreet's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
