Gold Values Decline Amid Robust Dollar and Escalating Bond Yields

Author: Christian Roberts - Photographer / Content Editor

Published: 15 Mar 2023

Last Updated: 15 Mar 2023


This blog discusses the factors contributing to a dip in gold prices, including a strong dollar and rising US bond yields. The Federal Reserve's plans to increase the benchmark rate twice due to high US inflation and easing banking crisis concerns are also highlighted. Despite gold's role as an inflation hedge, investor allocations remain low. The blog delves into the market's technical analysis and various scenarios that could influence gold prices in the short term.

Gold Values Decline Amid Robust Dollar and Escalating Bond Yields blog imagre

Essential Information for Gold Investors

- Strong dollar and rising US bond yields contribute to declining gold prices

- Federal Reserve plans to increase benchmark rate twice due to high US inflation and easing banking crisis concerns

- Despite its role as an inflation protection, gold allocations among investors remain low

Gold Market Snapshot

On Wednesday, gold prices witnessed a minor decrease, driven by a firmer dollar and an increase in US bond yields. Investors are examining the Federal Reserve's strategy for rate hikes after a consumer prices report revealed ongoing high inflation.

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

Gold prices dropped following Tuesday's decline, as rising Treasury yields curbed the metal's recent gains triggered by the US banking crisis. Additionally, February's increased US inflation further complicated the interest rate outlook, leading to lower gold prices.

Reduced Gold Demand Projections

A temporary sense of stability in US banks and an overnight rise in Treasury yields contribute to a short-term decrease in demand for safe-haven assets like gold.

Additionally, the ascending dollar index made gold more expensive for foreign buyers, while US Treasury yields experienced growth.

Shifting Attention to Federal Reserve Actions

The forthcoming Federal Open Market Committee (FOMC) meeting is a significant focal point, as doubts persist over how guidance and dot plots will adapt to recent changes in the US banking sector and efforts to tackle inflation.

Due to February's high US inflation and receding concerns about an extended banking crisis, the Federal Reserve is anticipated to raise its benchmark rate twice in the near term.

Although gold is typically seen as an inflation hedge, its opportunity cost increases as interest rates rise to counter inflation.

Despite this, data indicates that gold allocation among investors remains low, but the banking crisis could drive greater demand in the future.

Comex Gold Daily Technical Analysis

Based on the daily swing chart, the main trend for daily Comex gold is positive. A trade through $1919.50 will signal an uptrend continuation, while a move through $1813.40 will shift the main trend to negative.

The primary range is between $1975.20 and $1813.40, with the market trading inside its retracement zone, ranging from $1893.00 to $1912.40.

Additionally, the market is trading on the strong side of a long-term retracement zone, from $1889.50 to $1843.40.

Within this range lies a short-term retracement zone, from $1866.50 to $1853.90, which serves as the primary downside target.

Comex Gold Daily Technical Outlook

On Wednesday, trader responses to the Fibonacci level at $1912.40 are expected to determine the direction of the April Comex gold futures contract.

Negative Scenario

If the price stays below $1912.40, it will indicate the presence of sellers. The initial downside target is a support cluster between $1893.00 and $1889.50.

Failing to maintain $1889.50 could lead to a significant price drop towards $1866.50 to $1853.90, where potential buyers may be waiting.

Positive Scenario

A sustained move above $1912.40 will signal the presence of buyers. Surpassing this week's high at $1919.50 will suggest the buying momentum is increasing.

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