GOLD MARKET COMMENTARY – Gold faces downward pressure due to strengthening U.S. dollar and rising Treasury yields

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By David Brough

Gold prices faced downward pressure in mid-August, hovering near 1-1/2-month lows, due to a strengthening dollar and rising U.S. Treasury yields.

Spot gold was down 0.21 percent to USD $1,903.60 per ounce on August 15, 2023.

Prices of gold have fallen back from levels in excess of USD $2,000 per ounce in April, weighed by a firm dollar.

Bullion had gained ground as a “safe haven” during the U.S. banking crisis earlier this year, but monetary authorities acted quickly and prevented the crisis from getting out of control.

Now the concerns in the global economy centre upon China’s sputtering economic recovery following the pandemic, which appear to have boosted the appeal of the dollar, presently standing at its highest level in more than a month, making gold less affordable for those holding other currencies.

While the dollar remains firm, gold risks experiencing more downside pressure, potentially breaking below support at USD $1,900 per ounce and testing $1,850.

US retail sales data due in mid-August could give further clues as to the future direction of U.S. interest rates. Buoyant data could signal pressure for further rate hikes by the US Federal Reserve (Fed), while a softening of retail sales would add fuel to arguments to leave interest rates unchanged.

The latter scenario could drag on the dollar and underpin gold prices.

For UK-based gold savers, data showing a surge in year-on-year wage growth in the three months to June to 7.8 percent, have raised fears that the Bank of England could raise interest rates further after 14 back-to-back rises, in order to combat inflation. The surge in UK wages was the highest rate of increase since comparable records began in 2001.

So far U.S. monetary authorities have made more progress grappling with inflation than their counterparts in the UK.

“The Fed is unlikely to change its narrative on its current monetary policy, and market sentiment may be right that there may be just one more rate hike, if there is one, which will take place in November this year,” analyst Naeem Aslam wrote in a column for Kitco News.

“Although I continue to think that the Fed is very much done with its interest rate rises, and is unlikely to increase it, especially if inflation doesn’t shoot above market expectations, this means that the dollar index is likely to move lower, which should be positive for the gold price.”

Meanwhile in the UK, any further pressure to raise rates could strengthen the pound against the dollar, making gold purchases by UK-based savers more affordable.

(Disclaimer: Any opinions expressed in this article are solely those of the author and should not be considered as investment advice.)

GOLD MARKET COMMENTARY – Gold faces downward pressure due to strengthening U.S. dollar and rising Treasury yields