Gold Recovers on Lower U.S. Treasury Yields

Gold Price Breakout

Gold prices recovered on Monday as the benchmark 10-year U.S. Treasury yields plunged to their lowest levels in four months. Lower government yields reduce the opportunity cost of owning the yellow metal. But the gains were capped by a stronger dollar that remained near multi-month highs against a basket of rival currencies.

Spot gold is currently trading at $1,776.43 per ounce as of 0734 GMT.

Last week, the bullion recorded its worst weekly performance in 15 months and fell by around 6%. It came after the Federal Reserve hinted that it would tighten monetary policy sooner than expected. Fed officials moved their first projected interest rate increase from 2024 to 2023. They also had their initial discussions on ending their $120 billion monthly bond purchasing program.

But Minneapolis Federal Reserve President Neel Kashkari wants to keep the short-term interest rate near zero for at least until the end of 2023. It would help the labor market recover to its pre-pandemic strength, he explained. Kashkari also argued that the current price increases are due to the reopening of the economy but will subside as supply constraints recede.

DailyFX strategist Margaret Yang commented that the declining U.S. bond yields are helping the bullion stabilize and recover. But she predicted that the downward momentum might prevail in the near term. SPI Asset Management managing partner Stephen Innes added that investors are likely to focus on jobs and inflation data.

In physical trading, gold purchases in India rose last week after a slight decline in local prices. But dealers still don’t think that demand will return to normal levels anytime soon. The lower bullion prices also encouraged more buying in China. Dealer discounts dropped from $12-16 to around $5 per ounce. In Russia, the central bank reported that its gold reserves stood at 73.7 million troy ounces as of the beginning of June.

In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, increased by 1.1% on Friday to 1,0533.06 tons.

On the technical aspect of trading, Reuters technical analyst Wang Tao predicted that spot gold might retest a resistance price level at $1,797 per ounce. If it breaks above that level, the yellow metal could climb to $1,825.