(Kitco News) – Gold prices are seeing a sharp slide under pressure from rising U.S. Treasury yields and a stronger dollar, and Friday’s PCE report adds further downside risk, according to analyst James Hyerczyk at FX Empire.
After hitting a fresh all-time high of $2,449.89 on May 20, spot gold has fallen well over $100 per ounce.
“The yield on the 10-year U.S. Treasury note rose for the second consecutive day, reaching over 4.566% early Wednesday, while the 2-year yield climbed to 4.958%,” Hyerczyk noted. “The dollar index also gained 0.1%, making gold less attractive as higher yields tend to reduce the appeal of holding non-yielding bullion. A weak auction for $70 billion worth of 5-year notes further contributed to rising yields, with the bid-to-cover ratio coming in at 2.3, below the 10-auction average of 2.45.”
Hyerczyk said that in the current environment, Friday's personal consumption expenditures (PCE) price index, the Fed’s favored inflation gauge, takes on even greater significance for precious metals investors.
“Federal Reserve officials, including Minneapolis Fed President Neel Kashkari, have emphasized the need for ‘many more months of positive inflation data, before considering rate cuts,’” he said. “The minutes from the last Fed meeting revealed uncertainty about the outlook for rate cuts, reinforcing the cautious stance.”
Hyerczyk noted that markets are pricing in only 34 basis points of rate cuts in 2024, down from 150 basis points at the start of the year. “Consumer confidence data released on Tuesday showed unexpected improvement, but concerns about inflation and higher interest rates persist,” he wrote. “Markets are also focused on upcoming inflation reports from Germany and the euro zone, with the U.S. core PCE report being the main event on Friday.”
Geopolitical Tensions and Gold’s Safe-Haven Appeal
Despite the ongoing conflicts in the Middle East and Ukraine, Hyerczyk sees gold struggling to maintain its safe-haven status. “The hawkish rhetoric from Fed officials has led traders to scale back expectations of rate cuts, impacting gold prices,” he said. “According to the CME FedWatch tool, there is now a 46% chance of a rate cut in September, reflecting the market’s cautious outlook.”
Under current market conditions, Hyerczyk believes gold will likely come under further pressure, especially if the inflation data disappoints. “If the PCE data on Friday comes in higher than expected, it could solidify the prospects of higher-for-longer U.S. rates, potentially forcing spot gold to retest the $2,300 support level,” he said. “The bearish sentiment is reinforced by the Fed’s emphasis on inflation control, suggesting limited room for rate cuts in the near term.”
Turning to the technical picture, Hyerczyk said that gold’s price slide on Wednesday comes after the precious metal failed to breach critical resistance at $2,387.80.
“This resistance is pivotal for the short-term direction of the gold market, acting as the final hurdle before challenging the record high of $2,450.13,” he said. “On the downside, increased selling pressure could lead to a test of last week’s low at $2,325.46.”
“Further declines may push prices toward the 50-day moving average at $2,321.25, which currently controls the intermediate-term uptrend,” he concluded. “A break below this support level could significantly weaken market conditions.”
Spot gold fell to a session low of $2,334.54 per ounce just before 9 am EDT, but it has since staged a minor recovery, last trading at $2,343.40 for a loss of 0.76% on the session.
