Gold prices have retreated sharply over the past few weeks, with the precious metal trading at $4,120 on Tuesday morning, down from an August high of $4,692. The decline is driven by a robust US dollar and climbing Treasury yields, which have dampened demand for non-yielding assets like bullion.
Macro Pressures Mount
The US dollar index (DXY) jumped to 102.53 on Monday, its highest level in over a year, as the euro weakened significantly. This strength persists despite softer US economic data, including a disappointing nonfarm payrolls report and cooling inflation figures. The ten-year Treasury yield surged to 5.32%, a level not seen since 2002, while the two-year yield climbed to 4.831%. Higher yields make gold less attractive relative to interest-bearing government bonds.
The surge in yields is partly attributed to the ballooning US government debt, which has surpassed $40.2 trillion. Economists warn that this trajectory is unsustainable, with projections suggesting the debt could reach $41 trillion by early 2027 and $50 trillion by 2030. This fiscal backdrop has kept upward pressure on yields, further weighing on gold.
Data and Fed Expectations
Recent economic reports have been mixed. Friday's nonfarm payrolls showed only 29,000 new jobs added, while the unemployment rate rose to 4.2%. Additionally, US inflation eased in August. These figures have reduced the likelihood of a Federal Reserve rate hike in October, yet gold has not benefited, as the dollar and yields remain dominant drivers.
Investors now look ahead to the release of the Federal Reserve's meeting minutes on Wednesday. The minutes will offer insights into the central bank's deliberations during its last meeting, where it raised rates by 0.25%. While such minutes often move markets, their impact may be muted given the recent data shifts.
Technical Outlook Mixed
From a technical perspective, gold's recovery attempt stalled at $4,692 in August, and the metal has since fallen to its lowest level since August 5. It remains below the 50-day exponential moving average (EMA) and the Supertrend indicator, which is in the red, signaling that bears maintain control. However, a falling wedge pattern has formed, characterized by two descending and converging trendlines. This pattern often precedes a bullish reversal, but confirmation requires a breakout above the upper trendline. Conversely, a drop below the lower trendline could push gold down to $3,946.
In the broader market, the SPDR Gold ETF (GLD) has attracted only $1.31 billion in assets over the past 30 days, while the iShares Bitcoin Trust (IBIT) saw inflows of $2 billion, reflecting shifting investor preferences.
This article is for informational purposes only and does not constitute financial advice.
