Gold Slumps Amid Strong Dollar and Hawkish Fed Repricing

Gold prices have dropped to their lowest level since early August as the US dollar and Treasury yields continue to rise. The move follows US President Donald Trump's rejection of an Iranian proposal that would have reopened the Strait of Hormuz within seven days.

The correlation between gold and the DXY has hit -0.93 over the past five sessions, with gold moving almost perfectly in opposite directions to nominal US yields. Over the past month, gold's correlation with the US 2-year yield has sat at around -0.76, while over the past five sessions it has tightened further to -0.98.

The hawkish Fed repricing has led to extreme moves in US yields, with the 2-year yield rising around 55 basis points over the past 20 sessions. This puts the increase in the 98th percentile of comparable four-week moves since 1988.