Gold Slips As Firm Dollar and Treasury Yields Dampen Appeal

Gold bars

Gold prices plunged to more than a one-week trough on firm dollar and U.S. Treasury yields. The greenback stayed near recent peaks and made the bullion more expensive for investors using rival currencies. Meanwhile, U.S. yields continued to rise to multi-year highs as the market prepared for the Federal Reserve’s aggressive rate hikes. And the higher yields pulled investors away from the non-interest-bearing metal.

Spot gold is currently trading at $1,940.18 per ounce as of 0701 GMT.

OANDA senior analyst Jeffrey Halley commented that gold’s recent decline is about rebalancing fast money flows. It was not about a structural change in the bullion’s outlook. But that outlook could change if U.S. Treasury yields continue to rise through 3.0%.

Recent developments serve as headwinds and tailwinds for the yellow metal. China defied economists’ expectations and declined to lower its benchmark lending rates for corporate and household loans. Beijing maintained the one-year loan prime rate (LPR) at 3.70% and the five-year LPR at 4.60%.

Major central banks are preparing for the first-ever round of global quantitative easing. It would restrict credit and further slowdown world economic growth. Analysts estimated that the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan could see their balance sheets reduced by $2.2 trillion by May 2023.

In this context, the International Monetary Fund (IMF) lowered its global economic growth forecast by almost one percent. It cited the surging inflation, which now presents a clear and present danger for many countries. The IMF estimated that Ukraine’s GDP would shrink by 35% this year and Russia’s output by 8.5%.

On the technical front, DailyFX senior strategist Christopher Vecchio noted that the decline in gold volatility weighs on gold prices. It undercuts the metal’s ability to sustain a significant rally.  Vecchio also said that gold’s momentum is turning bearish. Prices have fallen below their 5-, 8- and 13-EMA and the daily MACD is on the brink of sending a sell signal. In addition, the daily Slow Stochastics have dropped below overbought territory. He also mentioned that the IG Client Sentiment Index indicates a bearish bias for gold prices in the near term.

FXStreet senior analyst Dhwani Mehta added that gold price remains vulnerable at the critical daily support amid mixed mood. She suggested that if prices close below the 21-DMA support, they could slide to $1,915 per ounce. On the upside, Mehta sees immediate resistance at $1,950.