Gold prices drop to one-week low as Dollar, bond yields soar

September 26, 2023 (MLN): International gold prices dropped to a one-week low on Tuesday as the dollar reached 10-month highs due to soaring U.S. bond yields amid the U.S. Fed's hawkish outlook.

International spot gold is currently trading at $1,912.29, down by 0.19% compared to the previous close.

“Gold at the moment will definitely start to face a bit more short-term downside pressure due to the rising U.S. Treasury yield plus the dollar strength,” said Kelvin Wong, senior market analyst, Asia Pacific, at OANDA, as Reuters reported.

The dollar scaled a 10-month high, while benchmark 10-year Treasury yields ascended a fresh 16-year peak, raising the opportunity cost of holding non-interest-paying bullion, which is priced in dollars.

Forecasts published on Wednesday showed that a majority of Fed policymakers see one more rate hike in the next three months, but investors continued to price in only about a 40% chance of further tightening in 2023.

Minneapolis Fed President Neel Kashkari said on Monday that borrowing rates probably needed to be raised further and kept high for some time to bring inflation back down to 2%.

A Fed rate-hike pause should provide some support to gold, ANZ analysts wrote in a note.

Investors will focus on the personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, due out on Friday.

Stronger-than-expected PCE data “could also be one of the catalysts to put downside pressure on gold to actually test that $1,900 key medium-term support level,” Wong said.

SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell on Monday to their lowest level since January 2020.

Meanwhile international spot silver is currently trading at $22.93, down by 0.86% on the day.

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