Gold pressured by rising bond yields
With all the Fed and other major central banks out of the way now, we have seen a sharp sell-off in stocks and bonds, and to a lesser degree gold, while yields and the dollar have risen.
The precious metal has shown some signs of life off late, due largely to haven demand with investors evidently starting to disliking equities amid valuation concerns and as yields continue to press higher and make long-duration growth stocks look less appealing.
But even gold fell over the past couple of days, thanks to the renewed breakout in bond yields, increasing the opportunity cost of holding zero-yielding assets like gold.
Gold traders will be watching US data closely. If incoming data continues to support the view that the US economy is holding its own better than expected, then this should keep the pressure on gold for a while yet.
This is because the Fed has scaled back expectations of its 2024 easing cycle quite significantly, now implying that 50 basis points of rate cuts are likely instead of 100 it had projected back in June. What’s more, the Fed has signalled there may be one more rate increase to come before 2023 ends. So, in effect, the Fed is signalling that interest rates will be cut by a net 25 basis points by the end of 2024, which is quite hawkish.
Now, whether that will be the case remains to be seen, with the Fed and other central banks having a habit of significantly under- or over-estimating things. The market will make its own mind up, which will depend on incoming data of course.
For the dollar to end its bullish bias, we will now need to see significantly softer US activity data moving forward. Until that happens, the dollar should remain in a bullish trend. Therefore, gold may continue to struggle to break higher.
So, watch out below!
Written by Fawad Razaqzada on behalf of FOREX.com
The precious metal has shown some signs of life off late, due largely to haven demand with investors evidently starting to disliking equities amid valuation concerns and as yields continue to press higher and make long-duration growth stocks look less appealing.
But even gold fell over the past couple of days, thanks to the renewed breakout in bond yields, increasing the opportunity cost of holding zero-yielding assets like gold.
Gold traders will be watching US data closely. If incoming data continues to support the view that the US economy is holding its own better than expected, then this should keep the pressure on gold for a while yet.
This is because the Fed has scaled back expectations of its 2024 easing cycle quite significantly, now implying that 50 basis points of rate cuts are likely instead of 100 it had projected back in June. What’s more, the Fed has signalled there may be one more rate increase to come before 2023 ends. So, in effect, the Fed is signalling that interest rates will be cut by a net 25 basis points by the end of 2024, which is quite hawkish.
Now, whether that will be the case remains to be seen, with the Fed and other central banks having a habit of significantly under- or over-estimating things. The market will make its own mind up, which will depend on incoming data of course.
For the dollar to end its bullish bias, we will now need to see significantly softer US activity data moving forward. Until that happens, the dollar should remain in a bullish trend. Therefore, gold may continue to struggle to break higher.
So, watch out below!
Written by Fawad Razaqzada on behalf of FOREX.com
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