Gold Prices Plunge Amid Rising Yields and Hawkish Fed Commentary
Gold prices have been falling in recent days after last week's post-FOMC pop faded amid rising interest rate expectations, higher oil prices, and a strengthening US dollar. The current macro backdrop makes it difficult to change the cautious gold forecast until something fundamentally changes. Yesterday saw the US dollar continue to press higher, supported by the slump in bond markets as yields broke out across the curve.
The greenback was also helped by some forecast-beating US macro data and hawkish Fed commentary, leading to gold and silver falling further. Today, the focus will be on the summit between Donald Trump and Xi Jinping, but it remains to be seen how the dollar may react to this event.
Gold's opportunity cost rises as yields break out, with the metal typically heading lower when bond yields increase. Yesterday saw a big breakout in US yields, with the 10-year surging above 5%, corresponding to gold falling around 1.5%. The chart shows gold inverted prices vs. US 10y bond yields.
From a technical perspective, not much has changed for a bullish gold forecast. The series of lower highs and lower lows have not yet been violated, suggesting the trend remains bearish. If gold continues to head lower from current levels, it could pave the way for a continuation towards $4,100 initially, ahead of $4,000 next.