Gold Worries About Strong Dollar and Weak Bonds

Gold prices are volatile as the US dollar strengthens and bonds weaken due to the tightening of the Federal Reserve (Fed).

According to Market Watch on the 14th (local time), the gold futures price on the New York Mercantile Exchange (COMEX) closed at $1813.5 an ounce, down 1% from the previous trading day, recording the lowest level in one month since the 13th of last month.

Gold prices recently declined as the Fed accelerated tightening, boosting demand for the dollar and newly issued bonds.

“The only asset that will attract investors right now is the dollar,” said Epek Ozkdeskaya, chief analyst at SwissQuat Bank. “Even other traditional safe-haven assets are suffering right now.”

In particular, on this day, the yield on the 10-year U.S. Treasury note hit an 11-year high, resulting in a large outflow of funds. In addition, the US producer price index (PPI) growth rate in May also recorded double-digit growth for the sixth straight month, fueling this trend as expectations grew that the Fed might accelerate tightening.

Some have warned that the gold market is still under significant selling pressure and that the price could drop below $1,800 as investors see the Fed’s 75bp (bp = 0.01 percentage point) rate hike as highly likely a ‘giant step’. Experts say that when interest rates rise, non-returning assets such as gold become less attractive.

“If Fed Chairman Jerome Powell signals at the Federal Open Market Committee that he is hawkish or that the Fed will remain aggressive towards rate hikes, the price of gold will drop further thereafter, ” said Lucman Otunuga, senior analyst at FXTM.

“If the $1,800 level breaks, it could drop to $1,765 after that,” he predicted.

Financial media outlet FX Empire predicted that the plating price would drop to the $1,700 level in the worst case. FX Empire said, “As the 10-year US Treasury yield broke through 3.45%, the gold market was completely shattered. We need to see the bond market calm down before the gold price recovers,” he said.