Gold price edged higher on Monday following the easing of the Treasury yields and US dollar. Even so, it remains range-bound amid fears over an ultra-hawkish Fed. As at 14:05 GMT, the precious metal was at $1,664.65; up by 1.26%.
What’s driving the market?
Gold price gains on Monday are the market’s reaction to the easing of the US dollar and Treasury yields. The dollar index erased some of Friday’s gains on Monday; an aspect that offered some support to gold price. As at the time of writing, it was at $112.53; down by 0.67%. A decline in the US dollar makes it less expensive for buyers holding other currencies.
Even so, it has held steady above the resistance-turn-support zone of $112 for the most part in about a month now. This explains why gold price continues to trade within a horizontal channel despite the gains recorded on Monday.
The retreating of US government bond yields also boosted gold price. On Thursday last week, the benchmark 10-year yields hit a fresh 14-year high at 4.08%. This followed the US CPI figures that indicated inflation in the country is yet to peak.
The yields have since eased to 3.94% as at the time of writing. Notably, a decline yields reduces the opportunity cost of holding the non-yielding bullion.
Even so, a look at both the technicals and fundamentals signal that gold price will likely remain under pressure in the ensuing weeks. As highlighted in the Fed meeting minutes released last week, high inflation remains a major concern for officials of the US central bank.
Even with the economic pains expected from an ultra-hawkish Fed, it is no longer a matter of if the bank will continue hiking rates. In fact, Fed officials have reiterated on the need to continue with the aggressive policy tightening in the next Fed meeting and beyond. Despite its status as a conventional hedge against inflation and safe haven, gold price tends to decline in an environment of high interest rates as Treasury yields and the US dollar strengthen.