Gold declines to two-week trough as US yields power up

Gold prices fell in European trade for the second session, plumbing a two-week trough and almost testing the support of $1,900 as the dollar spikes.

Another surge in US treasury yields also hurt gold prices as analysts expect the Fed to raise interest rates once more this year. 

The Federal Reserve also officially expects to hold interest rates high for most of 2024 and 2025 to control inflation.

Gold Prices 

Gold prices fell 0.3% to $1,909 an ounce, the lowest since September 14, with a session-high at $1,916, after losing 0.5% on Monday, the fourth loss in five days as the dollar strengthens. 

The Dollar

The dollar index rose 0.25% on Tuesday, extending gains for the third session in a row while hitting a 10-month high at 106.20 against a basket of major rivals.

A stronger dollar makes dollar-denominated gold futures costlier to holders of other currencies.

US Treasury Yields 

US 10-year treasury yields rose 0.6% on Tuesday, extending gains for the second straight session and scaling a 16-year high at 4.564%. 

Such gains came after the Federal Reserve issues official expectations that clearly pave the way for another interest rate hike this year.

The Fed also expects two interest rate cuts in 2024, much lower than previously expected. 

Fed Remarks 

Several Fed officials hinted last Friday at several more interest rate hikes, and said the battle with inflation isn't over yet.

US Rates

Current pricing for a 0.25% interest rate hike in November stands at 20%, which is still rather low.

However, pricing for a 0.25% Fed interest rate hike stands at a higher 40%.

Now investors await important US personal spending data to measure inflation and judge the likely path ahead for US policies.

The SPDR

Gold holdings at the SPDR Gold Trust fell 0.87 tonnes yesterday, the second drop to a total of 876.52 tonnes, the lowest since January 2020.