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In the backdrop of rising interest rate prospects, the price of gold continues to remain lackluster, and it appears susceptible to extending its downward trajectory. The pressure on gold prices stems primarily from the hawkish stance of the Federal Reserve, which continues to push up yields on U.S. Treasury bonds. Simultaneously, the U.S. dollar has maintained its strength throughout the year, resulting in capital outflows from the XAU/USD market.
On Tuesday, for the second consecutive day, gold prices faced selling pressure, marking the fifth day of declines in the past six days and reaching a one-and-a-half-week low during the Asian trading session. Currently, XAU/USD is trading slightly below $1,915, with a daily decline of over 0.10%. This decline is influenced by the increasing acceptance in the market that the Federal Reserve will sustain higher interest rates for a longer period, further diminishing the attractiveness of gold. In fact, the Federal Reserve issued a warning last week, suggesting that persistently high inflation in the United States could trigger at least one more interest rate hike before the end of this year. Furthermore, the majority of Federal Reserve policymakers currently anticipate only two rate cuts in 2024, down from the earlier projection of four cuts.
Meanwhile, as U.S. Treasury yields continue to rise, the U.S. dollar touched a 10-month high on Monday, exerting additional downward pressure on gold prices. Anticipation of forthcoming resilient U.S. macroeconomic data and hawkish comments from influential Federal Reserve officials suggest that the central bank will continue its monetary tightening. This, in turn, has led to prolonged selling in the U.S. fixed-income market, pushing yields on the interest rate-sensitive two-year U.S. government bonds to their highest level in 17 years. Furthermore, the benchmark 10-year U.S. Treasury yield has surged to the 4.50% threshold for the first time since 2006, further bolstering the U.S. dollar and confirming the bleak outlook for the precious yellow metal. Nevertheless, the possibility of a U.S. government shutdown may mitigate potential losses.
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