Gold Backs Off prices retreated on Friday during European trade, pulling back from record highs for the third consecutive session as investors engaged in profit-taking. This movement coincided with the advancement of US 10-year treasury yields, which often draws liquidity away from non-yielding assets like gold.
Gold Price Movements
Despite the recent decline, gold remains on track for its fourth consecutive weekly gain. On Friday, gold prices dropped 1% to $2,420 an ounce after reaching a session high of $2,445. This follows a 0.4% loss on Thursday, marking the second straight session of profit-taking away from the record high of $2,483.
Impact of US Treasury Yields
The rise in US 10-year treasury yields played a significant role in gold’s recent price movements. On Friday, yields increased by 0.5%, marking their second consecutive day of gains and moving away from four-month lows of 4.144%. Higher yields typically reduce the attractiveness of non-yielding assets such as gold, leading to decreased demand and lower prices.
Federal Reserve’s Influence
Expectations of multiple rate cuts by the Federal Reserve in September and November have been a crucial factor supporting gold prices. Despite recent declines, the precious metal has been buoyed by the high probability of rate cuts. According to the Fedwatch tool, there is a 98% chance of a 0.25% rate cut in September and a 100% chance of the same in November.
Weekly Performance of Gold
For the week, gold prices have increased by 0.5%, setting the stage for a fourth straight weekly gain. This continued upward trend highlights the metal’s resilience amid fluctuating market conditions and shifting investor sentiments.
Comments from Key Fed Officials
San Francisco Fed President Mary Dale recently emphasized the need for more confidence that inflation is returning to the 2% target before calling for rate cuts. She noted that prices are not yet stable. Meanwhile, Fed Chair Jerome Powell commented earlier in the week that recent consumer price data supports the confidence that inflation is moving towards the 2% target. He indicated that the Fed would not wait for inflation to actually hit 2% before beginning to ease monetary policies.
US Rates Outlook
Market expectations for Fed rate cuts have solidified, with the Fedwatch tool indicating a near certainty of cuts in the upcoming months. This outlook has provided underlying support for gold prices, despite recent profit-taking activities.
SPDR Gold Trust Holdings
The SPDR Gold Trust, a key indicator of investor sentiment in the gold market, saw its holdings fall to 840.01 tonnes, down from the recent high of 842.02 tonnes recorded on February 8. This decline suggests some investors are liquidating positions amid the recent price movements.
Conclusion
Gold’s recent pullback from record highs highlights the dynamic interplay between profit-taking and broader market forces such as treasury yields and Federal Reserve policy expectations. Despite the recent declines, gold remains in a strong position, poised for continued gains if market conditions remain favorable.
FAQs
Why did gold prices fall recently? Gold prices fell due to profit-taking by investors following recent record highs, coupled with rising US 10-year treasury yields.
How do US treasury yields affect gold prices? Higher US treasury yields typically reduce the appeal of non-yielding assets like Gold Backs Off, leading to decreased demand and lower prices.
What are the expectations for Fed rate cuts? There is a 98% chance of a 0.25% rate cut in September and a 100% chance of a similar cut in November, according to market expectations.
How has the SPDR Gold Trust holdings changed recently? Holdings in the SPDR Gold Backs Off Trust fell to 840.01 tonnes, down from a high of 842.02 tonnes, indicating some liquidation by investors.
What is the outlook for gold prices? Gold Backs Off prices are likely to remain resilient amid expectations of Federal Reserve rate cuts and ongoing market uncertainties, despite recent profit-taking.