Gold Tumbles On Higher U.S. Treasury Yields And Risk Appetite

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Gold prices slipped on Monday as rate hike expectations boosted U.S. Treasury yields. The market expects the Federal Reserve to raise interest rates by a quarter percentage point at its March 15-16 meeting. And that expectation lifted benchmark 10-year Treasury yields close to a one-month peak. Higher yields raised the opportunity cost of owning the non-interest-bearing metal.

Spot gold is currently trading at $1,975.56 per ounce as of 0730 GMT.

DailyFX strategist Margaret Yang commented that the key reason behind the gold’s decline is the surging Treasury yields. The market also appears to be pricing in on the Federal Reserve’s first rate hike in March.

On the Ukraine issue, Yang suggested that the worst is probably over. Russian President Vladimir Putin said on Friday that there are positive shifts in the negotiation with Ukraine. And that raised hopes that the two parties are will soon reach a ceasefire agreement. Given the situation, Yang predicted that gold prices would no longer rise above the previous highs or set a record price anytime soon.

Technically, Yang suggested that gold entered a technical correction after pulling back from a 19-month peak. She mentioned that SPDR Gold Trust reported a large inflow over the last three weeks. A faster rate of subscription to the ETF is considered a bullish signal for prices. However, the MACD indicator is forming a bearish crossover above the neutral midpoint, indicating bearish momentum.  Yang sees an immediate resistance at $1,954 and support at $1,913.

FXStreet senior analyst Dhwani Mehta agreed that the bullion would likely extend its downward momentum this week. She cited the stronger dollar and higher Treasury yields that weigh on the yellow metal. The expected rate, the resurgence of COVID-19 in China, and the possibility of further Russian attacks underpin the dollar. And a firm dollar dampens gold demand. Mehta added that the Relative Strength Index remains below the midline.

In physical trading, higher prices prompted dealers in India to offer discounts as high as $77 per ounce. Local gold prices soared to 55,5588 rupees per 10 grams, which was close to the all-time higher reached in 2020. In China, discounts increased to $2-$4 per ounce. A local dealer said that Chinese demand is clearly on its knees amid the speed and the move higher in gold prices.