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08.09.202323:02 Forex Analysis & Reviews: Gold prices inch higher as U.S. treasury yields dip

Exchange Rates 08.09.2023 analysis

Gold prices modestly climbed on Friday, driven in part by a decline in U.S. government bond yields. At the time of writing, December futures for gold on the COMEX in New York were edging up to $1,925 per troy ounce.

The 10-year U.S. Treasury yield, meanwhile, slipped to 4.228% from 4.264% compared to the previous trading session. U.S. government bonds, seen as a gold alternative, often move inversely to the precious metal.

The metal's recent stability reflects the market's anticipation of consistent monetary policy from the U.S. Federal Reserve. The Federal Reserve's next meeting is slated for September 19-20. According to CME Group data, 93% of analysts believe the U.S. central bank will hold off on any rate hikes, keeping it at its current range of 5.25% to 5.5%. However, one or even two rate hikes by year-end remain a possibility.

The dollar has been on its longest winning streak in nine years, buoyed by robust U.S. economic data. Such strength in the world's largest economy casts doubt on the end of the Fed's aggressive rate-raising cycle.

The U.S. service sector unexpectedly expanded in August, while unemployment claims reached their lowest point since February. In stark contrast, the European Union displayed less encouraging numbers, with Germany's industrial production in July falling more than analysts anticipated. Comparatively, the U.S. continues to outperform Europe in terms of growth indicators.

Since the U.S. non-farm payrolls data release last week, spot gold prices have seen only a marginal shift of around $15. They dipped from their closing level of $1,940 on September 1 to $1,925 by September 8. For a new trend to emerge, the market needs to break this $15 range. It's crucial for bears to breach below the $1,915 support level, while bulls aim for an advance above the $1,930 resistance.

Following the August employment report, the market seems to be in want of convincing data to shake up inflation or gold rates. With less than two weeks to the next Federal Reserve meeting, this range may persist.

However, the U.S. dollar remains a wildcard. The U.S. dollar index, which gauges its performance against major currencies, dipped 0.15% to 104.89 in August but stayed close to its six-month high of the previous session at 105.15. A strengthening dollar typically pressures gold, explaining the metal's subdued performance over the past week.

The index was on track to ascend for the 8th consecutive week, but has now decreased slightly by 0.08% to 104.97.

According to Dixit, a short-term correction in the dollar index could see it potentially descend to support zones at 104, 103.50, and 103, especially if the 104.75 - 104.50 support area is breached.

Should this occur, gold prices might find an upward thrust.

Andreeva Natalya,
Analytical expert of InstaSpot
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