The gold price tumbles fell on Monday in New York, settling at $2,330. This drop occurred as investors reassessed geopolitical risks, particularly the tensions between Iran and Israel. U.S. President Joe Biden’s statement that his country would not back Israel in a counterattack against Iran eased concerns of an escalation, contributing to the decline in gold prices.
At the same time, doubts have arisen over the possibility of the U.S. Federal Reserve lowering interest rates in the near future, further applying downward pressure on gold prices. The central bank is hesitant to reduce rates until inflation stabilizes at around 2%, aligning with its long-term goals.
Retail Sales Boost US Dollar and Bond Yields
U.S. retail sales data exceeded expectations, fueling a rise in both government bond yields and the U.S. dollar. The U.S. Census Bureau reported a 0.7% increase in retail sales for the month, surpassing predictions of 0.3%. Additionally, February’s sales were revised higher to 0.9%.
When consumer spending rises, it often leads to inflationary pressures as businesses can justify higher prices. This scenario strengthens the case for maintaining or even increasing interest rates, which negatively impacts gold, an asset that does not generate income like bonds.
The yield on 10-year U.S. government bonds climbed to 4.61%, making gold a less attractive investment compared to the higher returns offered by bonds. Meanwhile, the U.S. Dollar Index surged to a five-month high of 106.16, further weighing on gold prices.
Gold Price Reaction to Middle East Tensions
Gold price tumbles initially spiked following Iran’s airstrike on Israel, reaching new highs of around $2,430. However, the market’s perception that the conflict would not escalate further led to a retreat in prices. Iran indicated that the situation was resolved, though they warned of a severe response if Israel retaliated again.
The U.S. administration’s stance of not supporting Israeli counterattacks reinforced the belief that tensions in the Middle East might not worsen, calming market fears and contributing to the drop in gold prices.
Fed’s Stance on Interest Rates
Uncertainty surrounding the Federal Reserve’s future actions has also played a role in the gold market’s recent movements. Initially, expectations for a rate cut were tied to the June or July meetings. However, stronger-than-expected inflation data has pushed those expectations back, with market participants now eyeing September.
San Francisco Fed President Mary Daly stressed the importance of maintaining restrictive interest rates until inflation returns to 2%. Boston Fed President Susan Collins echoed these sentiments, expressing hope that slowing demand would eventually help bring inflation down.
Technical Analysis: Gold’s Price Drop
Technically, gold prices pulled back after reaching an all-time high near $2,430. Indicators like the Relative Strength Index (RSI) suggest that gold was overbought, leading to the recent decline. Despite this, some demand for gold persists, as the RSI remains in a range that indicates continued interest.
Should gold prices continue to fall, key support levels are at $2,268 and $2,223.
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