Gold slides to two-week low under pressure from US yields

Gold prices fell to a two-week low in European trading on Tuesday, extending losses for a third consecutive day under pressure from a stronger US dollar and rising Treasury yields.

More hawkish comments from Federal Reserve Chair Kevin Warsh at the annual Jackson Hole symposium have raised the likelihood of a US interest rate hike in September.

Investors are awaiting a series of key US labor market reports throughout this week to reassess those expectations.

The Price

• Gold prices today: Gold fell 1.3% to $4,389.63, the lowest since August 19, from an opening level of $4,448.10, and recorded a session high of $4,461.54.

• At Monday’s settlement, gold prices lost around 0.2%, marking a second consecutive daily decline.

• Over August, gold prices gained 10%, posting a second consecutive monthly advance and their largest monthly gain since January.

US dollar

The US dollar index rose more than 0.2% on Tuesday, resuming gains that had temporarily stalled in the previous session and approaching a two-week high, reflecting renewed strength in the US currency against a basket of major global currencies.

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

US Treasury yields

The yield on the 10-year US Treasury note rose more than 0.7% on Tuesday, extending gains for a fifth consecutive session and reaching a 20-month high of 4.788%.

The move in the US bond market followed Federal Reserve Chair Kevin Warsh’s hawkish stance at Jackson Hole, which increased expectations for an interest rate hike later this month.

US interest rates

• Federal Reserve Chair Kevin Warsh said at the Jackson Hole symposium on Friday that the US central bank would have “a lot of work” ahead if policymakers do not gain sufficient confidence that inflation is moving quickly toward the 2% target.

• Following those comments, according to CME’s FedWatch Tool, the probability of the Federal Reserve leaving interest rates unchanged at its September meeting fell from 66% to 40%, while the probability of a 25-basis-point rate hike rose from 34% to 60%.

• The probability of the Federal Reserve leaving interest rates unchanged at its December meeting fell from 26% to 13%, while the probability of a 25-basis-point rate hike increased from 74% to 87%.

• A series of highly important US labor market reports will be released this week. US job openings data for the end of July are due later today, followed by private-sector employment data for August on Wednesday, 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, were virtually unchanged on Monday at 1,042.36 metric tons, remaining at their lowest level since August 20.