Gold prices plummet as the US dollar and yields rise. XAU / USD: where will we go?

Gold prices plummet as the US dollar and yields rise. XAU / USD: where will we go?
Gold prices plummet as the US dollar and yields rise. XAU / USD: where will we go?
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Gold prices fell again due to the repercussions of last week’s Jackson Hole symposium on financial markets.

Federal Reserve Board of Governors Chairman Jerome Powell stressed that controlling inflation will be the central bank’s primary focus for the future. He said: “Our primary goal right now is to bring inflation back to the 2% target set by the Federal Open Market Committee.”

This has been the story for some time; however, after the July FOMC meeting, the market appeared to misunderstand Powell’s comments that the Fed’s target rate is close to neutral.

Due to this shift in sentiment, Treasury rates have risen across the curve. The rising dollar and the prospect of a slowdown in global growth have had the opposite effect, putting pressure on commodities in general.

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The price of gold is suffering from these causes. Since the summit, about 20 basis points (bps) have been added to 10-year Treasury rates. The market also reduced its 10-year inflation forecast. The yield to maturity of inflation-protected US Treasuries fell by about ten basis points (TIPS).

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The real yield of a Treasury bond is calculated by subtracting the annualized inflation rate over its life from the nominal yield of the bond. About 30 basis points (bps) have been added to the 10-year real rate in the United States since before the Fed symposium.

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Gold is an unrewarding asset. Therefore, it often falls in value as the yields of other investments perceived as safe haven assets, such as Treasuries, rise. Commodities appear fragile, especially when considering the effect of tightening monetary conditions on future development prospects.

Although volatility has increased as the price of gold falls, it is still far below the peak reached in mid-July. At the time, the minimum trading price of gold was $ 1,681 an ounce, just above the low of $ 1,677 set in March 2020. In case of greater uncertainty, the market could try to reach these points.

The article is in Italian

Tags: Gold prices plummet dollar yields rise XAU USD

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