. Gold Prices Surge Amid Reduced US Bond Yields

Gold Prices Surge Amid Reduced US Bond Yields

Gold Prices Surge Amid Reduced US Bond Yields

25 Feb 2024

Gold prices surge, aiming for a positive weekly conclusion amidst the backdrop of reduced US bond yields.

  • The surge in gold prices is propelled by a decrease in US Treasury yields and favorable market conditions.
  • Despite the prevailing risk-on sentiment, gold continues to attract investors, deviating from conventional safe-haven asset patterns.
  • Market sentiment adjusts to the Federal Reserve’s cautious stance, with expectations of substantial rate easing by the end of the year.

On Friday, gold prices resumed their upward trend for the week, poised to conclude with gains. The positive momentum is driven by the decline in US Treasury bond yields, coupled with a lack of significant news developments. Federal Reserve officials, including New York Fed President John Williams, maintain a consistent message in their recent statements. The XAU/USD is currently trading at $2,038, reflecting a 0.70% increase.

Fed policymakers are considering maintaining interest rates within the 5.25%-5.50% range to carefully evaluate whether the persistent inflation data from January is a temporary spike or a lasting concern. The Fed appears cautious about swiftly implementing rate cuts, as it could potentially pose upward risks to the enduring trend of consumer price inflation.

The opportunity cost of retaining non-yielding assets, like Gold, rises when the Fed leans towards maintaining higher interest rates for an extended duration. Future movements in safe-haven assets will be influenced by market anticipations regarding potential Fed rate cuts.

Gold prices continue to rise on expectations that the Fed will soon decrease interest rates.

The minutes from the Federal Open Market Committee (FOMC) for January reveal a reluctance among policymakers to implement rate cuts, opting for a cautious approach in light of the recent uptick in inflationary indicators. While recognizing a more balanced outlook for achieving their mandates, there is a commitment to being “highly attentive” to inflation, even if it comes at the expense of economic risks being skewed to the downside.

The goal for gold prices is to stay above the significant resistance level of $2,030, despite investors believing that the Federal Reserve is unlikely to implement early interest rate cuts.

According to the CME Fedwatch tool, investors anticipate that interest rates will stay within the 5.25%-5.50% range during the March and May meetings. Meanwhile, the likelihood of a rate cut in June has decreased slightly, falling just below 50% from its earlier level of around 54%.

The decline in expectations for early rate cuts is attributed to the Federal Reserve policymakers’ insistence on seeing sustained progress in inflation dropping to 2% over an extended period and maintaining tight labor market conditions.

Meanwhile, the US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, experienced a significant decline to 103.70 due to growing expectations of the Federal Reserve shifting towards implementing rate cuts later this year.

In the realm of geopolitics, officials in Rafah, a Palestinian city near the southern part of Gaza, have placed blame on both the Israeli and US administrations for the increased bombardment, leading to an attack on civilians.

Technical Analysis: Gold exceeds the 50-day Simple Moving Average (SMA) and sets its sights on reaching $2,050.

Gold has transitioned to a neutral-to-upward bias by surpassing the 50-day Simple Moving Average (SMA) at $2,033.75, paving the way for a potential challenge towards the $2,050 mark. Upon clearing these levels, the next targets include the February 1 high at $2,065.60, followed by the December 28 high at $2,088.48.

Conversely, if sellers manage to pull the XAU/USD spot price beneath the 50-day Simple Moving Average (SMA), it could lead to a test of the October 27 daily high-turned-support at $2,009.42. A breach of this level would reveal the 100-day SMA at $2,002.05. The subsequent support levels include the December 13 low at $1,973.13, followed by the 200-day SMA at $1,965.86.