Gold Falls as Rising Yields and Fed Expectations Weigh on Bullion
Gold prices rose slightly on Friday, but continued to fall for the third consecutive week. The spot price of gold increased by 0.4% to around $4,338 an ounce in Asian trading. However, this gain was not enough to reverse the trend of a decline that has seen bullion drop more than 2% so far this week.
The main driver behind the downward pressure on gold is the rising Treasury yields and expectations of higher interest rates from the Federal Reserve. The 10-year US yield has pushed close to 5%, while markets now see roughly a 70% chance of a September increase in rates.
Samer Hasn of XS.com attributed the weakness in gold prices to the combination of higher global bond yields and the Middle East conflict, which is lifting oil prices and inflation expectations. However, this tension has paradoxically strengthened the case for tighter monetary policy through higher energy costs.
The upcoming consumer-price report on Friday will be closely watched as a key test for markets. Consensus estimates compiled by FactSet point to headline CPI rising 3.3% from a year earlier, with core inflation at 2.4%. If the actual reading deviates significantly from these expectations, it could have a material impact on gold prices.
Despite the current short-term weakness in gold and silver prices, analysts believe that longer-term demand remains supportive. The World Gold Council reported that global gold-backed ETFs attracted $18 billion in August, the second-largest monthly inflow on record. Central banks also remained net buyers of gold in July, adding 23 tonnes.