Gold Holds Steady as Oil Fears Ease Dollar and Yields Limit Gains
Gold and silver prices remained relatively stable, with gold futures dipping slightly by 0.11% while silver futures climbed 1.14%. This movement is tied to the same factors that caused last Monday’s sharp decline, when gold dropped $172 and silver lost $3.60, but with a shift in market sentiment.
The initial drop last Monday was driven by concerns over Iran’s rejection of a peace offer and the potential for higher energy prices, which raised fears of prolonged inflation. This pushed the odds of a 0.25% Fed rate hike in October to 70.9%. However, those fears have since eased as reports indicated that oil tankers are once again traversing the Strait of Hormuz and the east-west pipeline has returned to full capacity. Additionally, the G7 nations released more oil reserves, further stabilizing supply. As a result, the likelihood of a Fed rate hike in October has fallen to 22.7%, reversing the earlier spike.
Despite the easing of oil supply concerns, gold failed to rally. Instead, traders focused on the rising yields of longer-dated US debt, with the 10-year Treasury yield hitting a multi-decade high of 5.349%. Combined with a weaker euro, this boosted the US dollar index to an 80-week high of 102.52, capping gold’s upside potential. If the dollar index reaches 104, it could push gold prices lower.
Technically, gold is struggling beneath the 78.6% retracement of its August rally at $4,174. Overcoming this level is crucial to avoid a test of the summer lows near $4,000. On the bullish side, gold has registered a bull cross of its 50- and 100-day simple moving averages, a positive signal after a bearish formation since May 7 that led to a $718 decline in futures. Until the next Federal Open Market Committee meeting, the Iran war and oil narrative will continue to drive gold and silver prices.