Gold Rises As The U.S. Dollar and Treasury Yields Decline

gold coins

Gold prices increased slightly on Wednesday as the U.S. dollar and Treasury yields eased. The greenback fell 0.1% and made the yellow metal less expensive for investors using rival currencies. Meanwhile, the benchmark 10-year Treasury retreat and lowered the opportunity cost of owning the non-interest-bearing bullion.

Spot gold is currently trading at $1,813.40 per ounce as of 0738 GMT.

Another tailwind for gold is the stronger-than-expected U.S. consumer price index (CPI) that strengthened its appeal as an inflation hedge. The Labor Department reported yesterday that June CPI rose by 0.9%, the biggest gain since June 2008. And for the twelve months through June, the CPI rose 5.4%. It was also the highest jump since August 2008.

Now that the CPI data is out, market participants will be monitoring Fed Chair Jerome Powell’s semiannual Monetary Policy Report to Congress later today. The report could provide cues on the central bank’s interpretation of rising prices and their implication on monetary policy. It is worth noting that he repeatedly stated that the higher inflation rate would be transitory. And Treasury Secretary Janet Yellen supports his views.

DailyFX currency strategist Ilya Spivak commented that the market’s focus would be on the Fed’s view on inflation. If the central bank reaffirms its June statement, then the upward potential for gold is gone.  Keep in mind that gold prices dropped by 7% last month after the Fed signaled that it would raise interest rates sooner than expected.

OANDA senior market analyst Jeffrey Halley agreed that the slight gains did not decisively shift the momentum higher. But he suggested that the bullion appears to be regaining its status as a hedge against inflation.

On the technical front, Margaret Yang of DailyFX said gold prices formed an ascending triangle. It suggests further gains if the price breaks that pattern’s ceiling. She sees an immediate resistance price level at $1,815 per ounce. But the Reserve Bank of New Zealand’s (RBNZ) decision to end its bond-buying program could impact gold prices, she added.

The RBNZ’s decision came amid persistent inflation worries around the world. It prompted local banks to call for an interest rate hike as early as August.

In Europe, the ECB will incorporate its new policy path into its policy guidance at its July 22 meeting. The new strategy will allow the central bank to tolerate an inflation rate higher than 2% when interest rates are near zero. ECB President Christine Lagarde said it is not yet time to dial back stimulus. Her deputy Luis de Guindos added that it is imperative to continue the policy support given the spreading of Delta variants in EU countries. The virus has forced more countries in the region to reimpose COVID-19 restrictions.