Gold's lustre dims as Treasury yields surge and markets bet on higher Fed rates
GLD•Spot gold fell as much as 4% to $4,111 an ounce, its lowest since August 5, as Treasury yields rose and markets priced in a roughly 70% chance of another Fed rate hike in October.
1. Yields pressure gold
Gold prices could face further pressure in the coming days as rising US Treasury yields and expectations of additional Federal Reserve rate hikes weaken demand for the non-yielding metal. Spot gold fell as much as 4% on Monday to $4,111 an ounce, its lowest since August 5. The 10-year Treasury yield touched its highest since June 2007 before paring gains.
2. Investor demand softens
Two-year Treasury yields have risen sharply this month as markets price in a roughly 70% chance of a second consecutive Fed rate hike in October. Money managers' net long gold positions fell to their lowest level since late July, while gold-backed exchange-traded funds recorded outflows of 1.6 metric tons last week; holdings remained at 4,249 tons. Chinese premiums over the global benchmark fell to zero by the end of last week.
3. Potential sources of support
Continued central-bank buying and stronger Indian demand ahead of Diwali and the wedding season could support gold, StoneX analyst Rhona O'Connell said. She added that historically high prices are likely to limit jewellery demand among price-sensitive buyers, particularly farmers, amid a relatively weak Indian monsoon.
