Firm Dollar and Higher Yields Push Gold Prices Down Ahead of Central Bank Meetings

gold bar

Gold prices fell below the key $1,800/ounce level on a firmer dollar and higher yields. The yellow metal soared to more than a one-month high last week but has since declined by 1.2%. The 10-year U.S. Treasury yields went up and lifted the opportunity cost of owning the non-interest-bearing bullion. The greenback firmed to near a one-week peak and made the metal more expensive and less appealing to investors using rival currencies.

Spot gold is currently trading at $1,791.36 per ounce as of 0720 GMT.

Meanwhile, market participants are assessing how central banks would respond to growing inflationary pressures. The Bank of Japan (BoJ) and the European Central Bank (ECB) will hold their monetary policy meetings on Thursday.

Analysts do not expect the BoJ to maintain its stimulus program. The wholesale inflation has reached a 13-year high, but consumer inflation remains around zero. But it is likely to cut its inflation and economic growth estimates for this year.

Unlike the BoJ, the ECB is under pressure as the eurozone inflation expectations among bond investors rose to a seven-year high and well above its target. The five-year, five-year forward inflation swap jumped to its highest level since August 2014.

Another pivotal meeting is that of the U.S. Federal Open Market Committee on November 2-3. The FOMC is expected to announce the tapering of its $120 billion monthly bond purchases. Though the labor market has not fully recovered, the initial jobless claims and unemployment rate is heading in the right direction. Some investors are worried because the Fed’s 2013 tapering led to eventual interest rate hikes.

OANDA senior market analyst Jeffrey Halley said the taper announcement would make it hard to gold to stay near the $1,800/oz level.

DailyFX senior strategist James Stanley added that the bullion’s behavior after the announcement would determine trends in the coming months. He also mentioned that the bull flag remains unfettered, though the bulls have been hit by a series of false breaks. Another formation appeared as the bullion reached past $1,800, and it carries bullish connotations.

In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, climbed by 0.2% from 978.07 tons on Monday to 979.81 tons on Tuesday. It reflects current market sentiment.