Gold prices dropped to around $4,135 during early Asian trading on Tuesday, extending losses as US Treasury yields remained elevated despite a decline in energy prices. The 2-year Treasury note yield rose more than 3 basis points to 4.778%, while the 10-year yield climbed over 4 basis points to 5.144%. The 30-year Treasury bond yield also increased by more than 4 basis points to 5.476%. Higher yields, driven partly by a selloff in French bonds following recent unrest, weighed on gold, as the precious metal offers no interest.
The Federal Reserve is widely expected to keep interest rates steady at its October 28 meeting, with Fed funds futures pricing in an 82.8% probability of no change. This comes after the Fed's September rate hike, its first since 2023. Traders are assessing the central bank's next move following comments by Chairman Kevin Warsh, which were interpreted as supporting a hold on rates this month.
Strategists at Deutsche Bank noted that markets are still digesting last week's stronger-than-expected US inflation data. They highlighted a rally in sovereign bonds, with the US 10-year Treasury yield down 16.5 basis points last week. Inflation expectations have risen on both sides of the Atlantic, with the 1-year Euro inflation swap up 21 basis points and the US inflation swap up 17 basis points.
Warsh's speech, scored at 5.6 out of 10 by FXS Speechtracker, emphasized structural growth and investment surges but avoided pre-committing to policy decisions. He noted AI as a near-term demand shock with uncertain employment effects. The FXS Fed Sentiment Index remained unchanged at 127.51, indicating a hawkish policy tone.
Technical analysis shows gold remains capped below the 100-day Simple Moving Average, with resistance at $4,180 and $4,240. Support is seen around $4,050. The Relative Strength Index near 42 suggests weak momentum but not oversold conditions.