Gold Prices Dip Due to Strong Dollar and Rising Bond Yields

Key Takeaways

• Gold prices decreased due to a stronger dollar and a rise in US bond yields
• Federal Reserve expected to raise benchmark rate twice due to high US inflation and eased banking crisis concerns
• Investor allocation to gold remains low despite its reputation as an inflation hedge.

Overview

Gold prices edged down on Wednesday due to a firmer dollar and an uptick in U.S. bond yields, with investors assessing the Federal Reserve’s rate-hike trajectory after a closely-watched consumer prices report showed still-high inflation.

At 07:00 GMT, April Comex gold futures are trading $1905.20, down $5.70 or -0.30% and XAU/USD is at $1900.73, down $2.44 or -0.13%. On Tuesday, the SPDR Gold Shares ETF settled at $176.86, down $1.00 or -0.56%.

The fall in gold prices followed Tuesday’s decline as a rise in Treasury yields took the shine off bullion’s recent rise driven by the U.S. banking crisis.

Additionally, an uptick in U.S. inflation in February raised more questions than answers on interest rates, further contributing to the decline in gold prices.

Reduced Demand Expectations for Gold

A degree of relative calm on U.S. banks and an overnight rise in Treasury yields is temporarily reducing demand for safe haven proxies such as gold.

Additionally, the dollar index was moving higher, making bullion, more expensive for overseas buyers, while U.S. Treasury yields increased.

Focus Shifts Back to Federal Reserve Policy

The upcoming Federal Open Market Committee (FOMC) meeting is also a key focus, with questions remaining as to how guidance and dot plots will evolve given recent developments with U.S. banks and combating inflation.

The Federal Reserve is expected to raise its benchmark rate twice in the coming months due to high U.S. inflation in February and easing concerns over a long-lasting banking crisis.

Although bullion is typically viewed as an inflation hedge, its opportunity cost increases when interest rates are raised to combat inflation.

Despite this, data suggests that investor allocation to gold remains low, but that the banking turmoil may stimulate investor demand over the longer term.

Daily Comex Gold Technical Analysis

The main trend is up according to the daily swing chart. A trade through $1919.50 will signal a resumption of the uptrend. A move through $1813.40 will change the main trend to down.

The main range is $1975.20 to $1813.40. The market is currently trading inside its retracement zone at $1893.00 to $1912.40.

The market is also trading on the strong side of a long-term retracement zone at $1889.50 to $1843.40.

Inside this zone is a short-term retracement zone at $1866.50 to $1853.90. This is the primary downside target.

Daily Comex Gold Technical Forecast

Trader reaction to the Fibonacci level at $1912.40 is likely to determine the direction of the April Comex gold futures contract on Wednesday.

Bearish Scenario

A sustained move under $1912.40 will indicate the presence of sellers. The first downside target is a support cluster at $1893.00 to $1889.50.

A failure to hold $1889.50 could plunge prices into $1866.50 to $1853.90, where buyers will be likely waiting.

Bullish Scenario

A sustained move over $1912.40 will signal the presence of buyers. Taking out this week’s high at $1919.50 will indicate the buying is getting stronger.

This could trigger an acceleration to the upside since the daily chart indicates no major resistance until $1975.20.