Gold Capped Below $4,230 as 10-Year Yield Holds at 5.28%
Gold prices are currently trading at $4,158 per ounce, up 0.4% from Friday's close, but remain capped below $4,230. The metal has faced a 2.1% weekly loss, marking its second consecutive week of declines. The 10-year Treasury yield, holding steady at 5.28%, has played a significant role in limiting gold's rally, which peaked at $4,227 on Friday before retreating.
The recent bounce in gold prices was driven by weaker-than-expected September payrolls data, which reduced the probability of a Federal Reserve rate hike in October to 20% from 70%. However, the rally was short-lived as the 10-year Treasury yield and a firmer dollar index offset the positive impact of the payrolls report. Gold's technical bias remains lower, with the metal trading within a range of $4,110 to $4,230.
Despite the recent declines, central bank buying has provided a strong support base. Record purchases of 289 tonnes in the second quarter have helped defend the $4,000 level. Additionally, U.S.-listed gold funds took in $3.8 billion in September, further supporting the price. However, the structural bid from these buyers sits $150 below the current price, indicating potential downside risk if the market breaks below the $4,110 support level.
The decline in gold prices from the January peak of $5,598 to the current level reflects a shift in market dynamics. Initially, expectations of Fed rate cuts and falling real yields supported gold prices. However, geopolitical tensions and rising inflation expectations have led to higher yields and a stronger dollar, outweighing the traditional safe-haven demand for gold. The metal is now down 25.7% from its January high.