Gold Prices Drop Below $2,390 as Strong Dollar and Bond Yields Weigh In
On Tuesday, spot gold prices dropped nearly $20, closing below $2,390 per ounce. The decline was attributed to the strengthening of the U.S. dollar and rising U.S. Treasury yields, which diminished the appeal of gold as a safe-haven asset. A rebound in global stock markets also contributed to the decrease in gold prices.
Spot gold fell by $19.62, or 0.81%, to close at $2,389.87 per ounce, with prices reaching a low of $2,381.31 during the trading session.
According to FXStreet analyst Christian Borjon Valencia, the rise in U.S. Treasury yields and a stronger dollar pushed gold prices below $2,400 per ounce. However, ongoing geopolitical tensions in the Middle East, particularly Hezbollah's attacks on northern Israel, could provide some support for gold.
Global financial markets showed signs of recovery on Tuesday. The Nikkei 225 index, which suffered a 12% drop on Monday, rebounded by 10.23%, marking its largest increase in history. U.S. stock markets also closed higher, bolstered by gains in Japanese stocks, with the Dow, Nasdaq, and S&P 500 all experiencing significant increases. European stock markets saw moderate gains, with Germany's DAX 30 and the UK's FTSE 100 rising slightly.
The U.S. dollar index, which measures the dollar's performance against a basket of six currencies, rose by 0.30% to 102.97. A stronger dollar increases the opportunity cost of holding gold for overseas buyers, reducing demand for the metal.
Amelia Xiao Fu, Head of Commodity Markets at BOCI, noted that while gold prices remain weak due to the strong dollar, the overall macroeconomic environment is relatively positive for gold, suggesting potential regional fluctuations in the short term.
Rising U.S. Treasury yields also pressured gold prices, with the 10-year Treasury yield climbing 10 basis points to 3.892% on Tuesday.
Valencia highlighted the impact of geopolitical tensions following Hezbollah's drone and rocket attacks on northern Israel. An escalation in conflict could bolster gold's safe-haven appeal, potentially supporting a recovery to $2,400 per ounce.
Market analyst Fawad Razaqzada from Forex.com mentioned that expectations of a Federal Reserve interest rate cut might limit the downside for gold prices. He anticipates that gold could rise to $2,500 per ounce in the short term. According to CME's "Fed Watch" tool, there is a 100% market expectation of a rate cut in September.
Valencia indicated that gold's fall below $2,400 per ounce may lead to further declines if key support levels are breached. The Relative Strength Index (RSI) suggests a sharp bearish trend. If gold drops below the 50-day moving average of $2,366 per ounce, it could decline further to the 100-day moving average of $2,342 per ounce, with additional support at $2,316 per ounce. Breaking these levels could see prices fall to $2,300 per ounce.
Conversely, if buyers push prices back above $2,400 per ounce, the next resistance would be at $2,450. Surpassing this level could drive prices to the August 2 high of $2,477 per ounce. Further gains could see gold targeting all-time highs of $2,483 and eventually $2,500 per ounce.
