Gold slides as safe-haven demand shifts to US Treasuries despite lower yields

Gold prices declined over 2% on Thursday as investors turned to US Treasuries for safety amid falling yields and shaky equities. Concerns over technology companies' credit risks rose as investors awaited proof that AI investments would yield returns. XAU/USD traded at $4,047, marking a ten-week low of $4,034. Market sentiment turned gloomy, and Middle Eastern tensions spiked as the Houthis and Saudi Arabia exchanged attacks, coupled with the US evacuating its embassy in Riyadh and reports of an impending strike on Iran.

Energy costs climbed higher due to increased geopolitical instability. Despite the US 10-year Treasury yield dropping 15 basis points to 4.963%, the lowest level since September 23, gold struggled to benefit from the safe-haven rally, as it typically performs well in lower-yield environments. Investors sought the yield of US Treasuries over the non-yielding metal.

WTI crude oil rose more than 1.80% to $99.50 per barrel, while the US Dollar Index (DXY) held steady around 101.62. US Initial Jobless Claims for the week ending October 17 were better than expected at 194K, below forecasts and the previous reading of 200K, and the four-week average fell to 197.75K, indicating a low-firing labor market.

US inflation data exceeded expectations, but traders had discounted a rate hike in October. Federal Reserve officials supported another hike but wanted to wait for further data before acting. The probability of a December rate hike dropped to 8%, while an 80% chance existed for December, according to Prime Terminal. The US economic calendar would feature the University of Michigan Consumer Sentiment release next, followed by the Fed’s meeting and the Core Personal Consumption Expenditures (PCE) Price Index.

Gold broke below the $4,100-$4,200 range, with sellers pushing it firmly under $4,050. The RSI suggested sellers were gaining momentum, indicating further downside. Support lay at the $4,000 level, above the July 29 cycle low of $3,996, while resistance was at $4,100, paving the way to $4,200. The next target was the 100-day Simple Moving Average (SMA) at $4,222, followed by the 50-day SMA at $4,309 and $4,500.

Gold has historically been a store of value and medium of exchange, widely used as a safe-haven asset during turbulent times. Central banks are the largest holders of gold, diversifying their reserves during uncertain periods to strengthen their economies and currencies. Gold's inverse correlation with the US Dollar and US Treasuries means it typically rises when the Dollar depreciates and falls when interest rates rise.

Geopolitical instability or recession fears can cause gold prices to surge due to its safe-haven status. A weaker US Dollar often drives gold prices higher, as gold is priced in dollars (XAU/USD). Analysts noted that markets were reacting to a mix of factors, including Middle Eastern tensions, US bond yields, and the US Dollar's performance.