Gold prices have declined since last week Thursday, due to U.S government bond yields and the U.S Dollar rising in tandem on Fed rate hike prospects. Gold dropped $54 the past week to the $1,730 area, or the lowest level since June, 2020. The 10-year Treasury yield rose above 1.5% while shorter-dated rates surged toward pre-pandemic levels and a technology-led equity selloff deepened.
The underlying narrative the past week has been that the U.S central bank could raise U.S interest rates sooner-than-expected – a form of pruning the mass money printing that they’ve undertaken since the Covid-linked lockdowns began. These expectations tend to strengthen the Dollar, and discount equity earnings more substantially, which has the result that growth stocks and gold tend to take a hit.
Chair Jerome Powell said Monday the inflation test for scaling back the Fed’s bond-buying has been met, while the employment test “is all but met.” Fed Governor Lael Brainard said the labor market may soon meet her yardstick for scaling back asset purchases, while New York Fed President John Williams noted that moderating bond-buying may soon be warranted.
However, BlackRock Investment Institute Head Jean Boivin expects the first interest rate hike from the Federal Reserve to come in 2023, and if it happens, to see the shallowest hike path in decades (similar to the 1950’s and 1960’s in the U.S).
The gold price is likely to continue to see a lot of noisy behavior, as the market is determining whether or not it will strengthen – look out for the $1,790 level on the upside, and $1,680 level on the downside.
The yellow metal was last seen trading at $1,734/oz.