Gold Touches 5-Week Low Amidst Continued High US Dollar and Elevated Yields

Gold prices experienced a notable dip, touching their lowest level in over five weeks on Monday, as both the U.S. dollar and bond yields showcased resilience. This market movement unfolded ahead of the imminent release of the U.S. Federal Reserve’s July meeting minutes, an event that is expected to offer insights into the potential trajectory of interest rates in the future.

As the clock struck 0356 GMT, the value of spot gold slipped by 0.1%, settling at $1,912.13 per ounce. This marked a clear descent from previous levels, with the price reaching its nadir since July 7. Concurrently, U.S. gold futures also saw a marginal decline of 0.1%, with figures reaching $1,944.10.

The focal point of this downward trend was the ascendance of U.S. bond yields, propelling the U.S. dollar to its highest peak since July 7. The catalyst for this movement emerged from data released on Friday, which demonstrated a slight overshoot in producer prices for the month of July. Particularly noteworthy was the resurgence in the cost of services, registering its swiftest pace of rebound in nearly a year.

Clifford Bennett, the Chief Economist at ACY Securities, weighed in on this dynamic, pointing out that the U.S. dollar appeared to be undergoing an upward trajectory. This observation was underpinned by the growing market understanding that even though the Federal Reserve might be currently maintaining a hold on rates, commercial rates and bond yields could potentially witness further increments.

The correlation between the rise in interest rates and elevated Treasury bond yields and the reduction in gold’s attractiveness is worth noting. Holding gold becomes more costly when alternative assets like bonds offer interest, and the precious metal itself is priced in dollars.

As the trading week progressed, investors’ attention shifted toward China, with expectations set for the release of data on retail sales and industrial output on Tuesday. Simultaneously, the anticipation for U.S. retail sales figures on the same day and the subsequent release of the Fed’s July meeting minutes on Wednesday remained on the radar.

Bennett expanded on this sentiment, speculating that the minutes from the Federal Reserve’s meeting would likely adopt a hawkish tone, thus potentially further pressuring gold. He projected that gold could potentially face a continued downward trajectory, possibly reaching as low as $1,900, or even touching $1,880.

The sentiment surrounding gold’s attractiveness found additional reinforcement through the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund. The fund reported a reduction in its holdings to levels that haven’t been observed since late January 2020.

Further substantiating this outlook, data unveiled on Friday revealed that COMEX gold speculators had reduced their net long positions by a significant 23,755 contracts, ultimately settling at 75,582 contracts by the week concluding on August 8.

Within the realm of other precious metals, the scene was not drastically different. Spot silver underwent a decrease of 0.4%, reaching a value of $22.59 per ounce, revisiting a low that was last observed on July 6. Meanwhile, platinum experienced an 0.8% decrease, registering a figure of $905.04. In contrast, palladium managed to hold its ground, maintaining stability at $1,292.97.