Gold Price Faces Test at $4,300 Amid Rising US Yields
The gold market is facing a test of $4,300 as US yields rise sharply.
Last week's gold sell-off was limited despite the yield on 10-year US Treasury bonds reaching its highest level in two decades at 5.2%.
According to Commerzbank, the market is expecting US interest rates to be raised sooner than expected, pushing up US bond yields and real yields, which increases the opportunity cost of holding gold.
However, Commerzbank argues that this needs to be viewed in a broader context. Two months ago, gold was struggling to hold the $4,000/ounce support level while bond yields and interest rate expectations were significantly lower at the time.
Analysts Neil Welsh of Britannia Global Markets and Joy Yang of MarketVector Indexes suggest that gold still has a structural buffer against selling pressure due to strong buying by central banks, persistent geopolitical tensions, and growing fiscal concerns.
The S&P 500 index continues to hover near record highs above 7,000 points despite rising inflation and high bond yields. Analyst Yang suggests that some equity investors may be underestimating the risks in the bond market while others remain in the safe-haven market waiting to see if inflationary pressures begin to ease.
The $4,235 mark is attracting attention, and many analysts believe that gold's downside potential may be limited. However, Ole Hansen of Saxo Bank will be watching the $4,235/ounce support level next week, warning that if this level is broken, the market could enter a deeper correction and turn attention back to the $4,000 region.
The current economic data release schedule is quite packed, with key releases including the latest Personal Consumption Expenditures (PCE) Index, which will provide further insight into the persistent inflation situation. The week will conclude with the September Non-Farm Employment report, which will show the resilience of the labor market in the current economic environment.
Analysts believe that gold investors should pay particular attention to labor market data, as these figures can impact interest rate expectations more strongly than inflation data. A weaker-than-expected jobs and wage report could drag bond yields and the USD down, thereby creating room for gold to rise.