Gold Climbs on Lower U.S. Treasury Yields But Remains in Range-Bound Trading

gold bars

Gold prices increased slightly on Wednesday as the U.S. Treasury yields eased after three sessions of gains. But those gains were capped by a strong dollar, which made the bullion less attractive for investors using rival currencies. Despite today’s advance, the yellow metal remains in range-bound trade. Investors are reluctant to make any bets as they balance between recession risks and the prospects of higher interest rates.

Spot gold is currently trading at $1,816.78 per ounce as of 0701 GMT.

Market participants are waiting for the outcome of the annual European Central Bank (ECB) summit that will likely impact market expectations of policy normalization. The attendees include heads of the U.S. Federal Reserve, the ECB and the Bank of England.

Meanwhile, Fed policymakers recently pushed back against rapid interest rate hikes amid fears of a steep downturn. San Francisco Federal Reserve Bank President Mary Daly said many are concerned that aggressive rate hikes would trigger a recession. But she that uncontrolled inflation would be a significant constraint and threat to the U.S. economy. U.S. consumer confidence has already fallen to a 16-month low in June as consumers anticipate a recession in the second half of 2022 because of inflation.

New York Federal Reserve Bank President John Williams agreed that the central bank must act decisively to curb inflation. In support, St. Louis Federal Bank President James Bullard cited examples when the Fed raised rates but did not trigger a recession. It was in 1983 and 1994.

In the eurozone, ECB President Christine Lagarde also played down concerns about a recession. She said her team is ready to raise interest rates at a faster pace if inflation continues to shoot higher. The eurozone expects a headline inflation rate of 6.8% in 2022. That is way above the ECB’s target of 2%.

Michael McCarthy, the chief strategy officer at Tiger Brokers, commented that the interest rate outlook could move gold out of range-bound trading. He said the rising rates and the dollar strength offset inflationary forces, which balanced the gold market. However, there is not much to be excited about the prospects for gold given the volatility of many other markets.

FxStreet senior analyst Dhwani Mehta added that gold’s daily price chart confirmed a two-week-old pennant breakdown. She also mentioned that the 14-day Relative Strength remains below the midline, indicating further downside. Mehta sees immediate support at $1,817. A break below that could push the bullion down to $1,800. DailyFX senior strategist James Stanley noted a descending triangle-like formation in gold’s two-hour price chart.