Gold Slumps as US Yields Breach 5% and Dollar Strengthens on Hawkish Fed Bets
Gold prices reached a one-week low on Wednesday as Treasury yields broke above 5% and the US Dollar Index surged to a two-month high, fueled by expectations of a more hawkish Federal Reserve. The XAU/USD price was around $4,266, down 0.48% on the day.
The 10-year Treasury yield rose 15.2 basis points to its highest level since 2007, while shorter-dated yields remained near multi-year highs. This increase in yields put pressure on gold prices, making it more expensive for non-US buyers due to a stronger US Dollar.
The recent US S&P Global PMI data showed the economy remains resilient, with the Composite PMI rising to 58.4 in September, a five-year high. Labour data also supported this view, with Initial Jobless Claims increasing to 197K from 196K, contrary to forecasts of 201K.
The CME FedWatch Tool now shows a 75% chance of another interest rate hike in October, further solidifying expectations of a more hawkish Federal Reserve. Derivative traders are advised to position for further downside in gold, with buying short-term put options targeting the $4,150 support level seen as a sensible move.