Gold sharpens decline to two-month lows as US yields surge

Gold prices declined in European trade on Thursday for yet another session, hitting two-month lows as US yields continue to surge while demand on non-yielding assets like gold decline. 

The developments in US yields come after strong US inflation data for August, which bolstered the case for a more aggressive policy tightening stance by the Fed next week. 

Gold Prices

Gold prices fell 0.6% to $1,685 an ounce, the lowest since July 21, with a session-high at $1,698. 

Gold prices lost 0.3% yesterday, the second loss in a row as US yields spike. 

US Bonds 

US 10-year treasury yields rose 1.3% on Thursday for the fourth straight session, almost hitting three-month highs at 3.474%, pressuring gold prices. 

The developments come after stellar US inflation data which beat expectations for August and bolstered the case for aggressive Fed policy tightening  this month. 

Strong demand and labor sector in the US and accelerated wages growth are underpinning inflation further and forcing the Fed to increase interest rates by large amounts.

Analysts now expect the Fed to increase interest rates by 75 basis points at the September 20-21 meeting by a 100% margin, while bets on a 1% rate hike rose from 0% to 34%.

Estimates

Analysts are genuinely entertaining the idea that the Fed might  hike interest rates by 100 basis points, which would easily send gold prices below $1,680. 

We expect gold prices to continue heading lower after giving up $1,700, with prices now heading to two-year lows. 

The SPDR

Gold holdings at the SPDR Gold Trust fell 2.32 tones yesterday, the fifth decline in a row, to a total of 960.56 tones, the lowest since March 2020.