Gold extends losses to four-week low as US dollar and Treasury yields rise

Gold prices fell in European trading on Wednesday, extending losses for a fourth consecutive day and hitting a four-week low, as selling continued under pressure from a stronger US dollar and another jump in the benchmark 10-year US Treasury yield.

Global oil prices climbed to their highest levels in six weeks, adding to inflationary pressures facing Federal Reserve policymakers and strengthening expectations for a US interest rate hike in September.

The Price

• Gold prices today: Gold fell 1.1% to $4,282.65, its lowest level since August 7, from an opening level of $4,329.06, after recording a session high of $4,349.16.

• At Tuesday’s settlement, gold prices lost around 2.7%, marking a third consecutive daily decline, pressured by rising US dollar and Treasury yields.

US dollar

The US dollar index rose 0.2% on Wednesday, extending gains for a second consecutive session and reaching a two-week high of 99.81, reflecting continued strength in the US currency against a basket of global currencies.

As is widely known, a stronger US currency makes dollar-denominated gold less attractive to buyers holding other currencies.

The dollar’s advance has been supported by safe-haven demand amid renewed military tensions in the Middle East, as well as the continued rise in US Treasury yields.

US Treasury yields

The yield on the 10-year US Treasury note rose more than 0.3% on Wednesday, extending gains for a sixth consecutive session and reaching a three-year high of 4.812%, providing further support for the US dollar.

Global oil prices

Oil prices rose more than 1% on Wednesday, extending gains for a third consecutive session and reaching six-week highs amid concerns over oil flows through the Strait of Hormuz.

Latest developments in the Iran war

• Developments have become increasingly serious, with the Iran war seeing an exchange of military strikes between the United States and Iran.

• The US military launched a new wave of strikes on Iran, targeting Islamic Revolutionary Guard Corps positions, air-defense facilities, radar sites and naval assets linked to threats against shipping in the Strait of Hormuz.

• Iran responded with missile and drone attacks on US positions across the region, including bases in Jordan, Bahrain and Kuwait, with Jordan saying it intercepted most of the missiles.

• Tehran threatened to tighten restrictions on shipping through the Strait of Hormuz, while field reports indicate that vessel traffic has fallen sharply.

• Only five vessels crossed the strait on Monday, according to preliminary Kpler data, with no large oil or liquefied natural gas tankers detected.

• US President Donald Trump said the United States is not forcing Iran to negotiate following the latest round of military strikes.

• The Islamic Revolutionary Guard Corps warned the United States of “consequences” for the latest attacks, while Iran’s Supreme Leader said Tehran would respond to Washington.

US interest rates

• Federal Reserve Governor Michael Barr said on Tuesday that if inflation does not fall quickly, it will be time for the central bank to raise interest rates.

• According to CME’s FedWatch Tool, the probability of the Federal Reserve leaving interest rates unchanged at its September meeting currently stands at 30%, while the probability of a 25-basis-point rate hike stands at 70%.

• The probability of the Federal Reserve leaving interest rates unchanged at its December meeting currently stands at 9%, while the probability of a 25-basis-point rate hike stands at 91%.

• Investors are awaiting further key US labor market data. US private-sector employment figures for August are due later today, followed by weekly jobless claims on Thursday and the August employment report on Friday.

Gold outlook

We expect that if US labor market data come in stronger than markets currently anticipate, expectations for a September interest rate hike will be reinforced. This would likely drive further gains in the US dollar and Treasury yields, putting additional downward pressure on gold and other precious metals.

SPDR Fund

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased by around 4.28 metric tons on Tuesday, bringing the total to 1,046.64 metric tons.