Gold Tumbles as Dollar and Yields Continue Ascent

The price of gold has dropped to its lowest level since early August as the US dollar and Treasury yields continue their upward trend. This comes after US President Donald Trump rejected an Iranian proposal that would have reopened the Strait of Hormuz within seven days, leading to increased tensions in the region.

The correlation between gold and the DXY index has hit -0.93 over five sessions, with the inverse relationship between gold and nominal US yields also remaining strong. The 20-session correlation between gold and the DXY sits around -0.59, while the correlation between gold and US 2-year, 5-year, and 10-year yields is even tighter at -0.98, -0.99, and -0.97 respectively.

The rise in US 2-year yields has been particularly pronounced, with a 55-basis-point increase over the past 20 sessions placing it around the 98th percentile of comparable four-week moves since 1988. As a result, gold has struggled to maintain its value, despite attempts to break above $4,300 last week.

The price of gold is now testing the lower end of a falling wedge structure formed in September, with support levels at $4,235 and $4,220 acting as a potential floor for prices. Traders are advised to sell into strength and downside breaks, with targets set at $4,245 and $4,300 on the upside.