Gold price decline on Monday, driven by concerns about global growth and rising US Treasury yields. This decline follows last week’s disappointing US employment data, which added to market anxieties.
Impact of Rising Treasury Yields
The increase in US Treasury bond yields is attributed to the potential return of former President Donald Trump. Trump’s economic policies, which include tax cuts and increased spending, are expected to lead to higher inflation and interest rates. These factors are detrimental to gold, which does not yield interest. Short-term traders taking profits after Friday’s 1.45% gain also contributed to the decline.
Gold’s Performance Amid Market Uncertainty
On Monday, gold traded in the $2,370s, down from Friday’s peak of $2,393 following the release of US NonFarm Payrolls (NFP) data. Despite weaker US labor market data raising hopes that the Federal Reserve might cut interest rates sooner, gold price decline due to concerns over Trump’s impact on bond markets.
The possibility of Trump winning the upcoming presidential election adds to market uncertainties. Trump’s fiscal policies are expected to keep inflation high, leading to increased interest rates. This scenario negatively impacts US Treasury bonds and pushes up yields, which are inversely related to gold prices. The strengthening US Dollar also weighs on gold, as it is primarily traded in USD.
Geopolitical Factors Supporting Gold
Despite the downward pressure, gold remains supported by various geopolitical and macroeconomic factors. Ongoing conflicts in the Middle East and Ukraine drive investors to gold as a safe haven. Additionally, efforts by the BRICS nations to reduce reliance on the US Dollar in global trade favor gold as an alternative reserve asset.
High central bank demand, accounting for about a quarter of the gold market, also supports gold prices. Asian central banks, in particular, have been accumulating gold to hedge against currency depreciation versus the US Dollar.
Technical Analysis and Future Outlook
Gold recently reached a major resistance level at $2,388 and has since pulled back. If gold surpasses Friday’s peak of $2,393, it could aim for the all-time high of $2,451.
The previous bearish Head & Shoulders pattern has been invalidated, but a more complex topping pattern could still emerge. If gold prices break below $2,279, a further decline to $2,171 could be possible. In the short and medium term, the trend for gold is sideways, but the long-term trend remains upward.
Conclusion
Gold prices are influenced by a variety of factors, including rising US Treasury yields, geopolitical tensions, and central bank demand. Investors should keep an eye on these elements to understand the future direction of gold prices.
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