Gold dips as US bond yields gain strength

Gold prices continued to decline on Monday, trading below the yearly low of $1,681 per ounce support and dropping as low as $1,660 per ounce. If gold prices continue to decline, support may be found at the 2020 low near $1,441 per ounce. Resistance may be found at around 1,740 per ounce and higher up at $1,765 per ounce.

The dollar gained strength on Monday and the dollar index climbed above the 110 level. US Treasury yields rose, with the US 10-year bond yield touching 3.5%. 

Gold prices are driven down by the shift of most major Central Banks toward a tighter monetary policy to combat rising inflation rates. Assets yielding interest become a more appealing investment compared to gold as interest rates rise. The ECB has performed its largest ever rate hike, raising interest rates by 75 basis points, pushing gold prices down and ECB officials hint at another steep rate hike at the ECB’s next meeting in October. 

This week, all eyes are going to be on the much-anticipated Fed monetary policy meeting on the 21st as Fed is set for another steep rate hike. Market odds are favoring a 75-bp rate hike, while an ultra-rate hike of 100 basis points is reportedly a possibility. A significant rate hike has already been priced in by markets and a lower-than-expected rate hike of 50 bp might easily provide support for gold prices at their current level. A steep rate hike of 75 basis points or more will likely set gold prices tumbling again, especially if followed by a hawkish Fed Statement and Press Conference. 

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Written by:
Myrsini Giannouli

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