Gold prices decline to 29-month lows as US yields surge

Gold prices declined in European trade to 29-month lows for the fourth straight session, on track for the largest weekly loss in two months as US treasury yields continue to spike while demand declines on non-yielding assets. 

Such developments come after a spate of bullish US data that paved the way for more aggressive policy tightening by the Federal Reserve next week. 

Gold Prices

Gold prices fell 0.3% to $1,659 an ounce, the lowest since April 2020, with a session-high at $1,667, after losing 1.9% on Thursday, the third decline in a row, and the largest since July 5 following strong US data. 

Gold prices lost 3.4% so far this week, on track for the fourth weekly loss in the last four weeks, and the largest since early July. 

US Yields

US 10-year treasury yields rose 0.9% on Friday for the fifth straight session, hitting three-month highs at 3.484%, and almost passing the 3.5% barrier for the first time since 2011, hurting gold prices. 

Such developments come following a spate of US data that bolstered the case for aggressive policy tightening by the Fed next week. 

US inflation data beat expectations in August while unemployment fell to three-month lows, and retail sales rose unexpectedly last month.

Bets on a 0.75% rate hike by the Federal Reserve in September rose to 100%, while bets on a 1% rate hike rose to 37%.

Estimates

The Fed might try to shock the market with a real chance of a 1% rate hike next week, which would tank gold prices below $1,600.

We expect gold prices to keep heading lower, hitting 29-month lows and meandering through $1,600.

The SPDR

Gold holdings at the SPDR Gold Trust rose 1.45 tones yesterday, the first such increase since August 19, to a total of 962.01 tones, away from March 2020 lows.