Stories
Gold's Rally Stalls as Rising Yields and Fed Hike Bets Create Headwinds
- •Gold's 11% rally in July-August reversed, dropping 6% this month to $4,300 an ounce, as rising US Treasury yields and increased Federal Reserve rate hike expectations weigh on the non-yielding asset.
- •The CME FedWatch tool shows a 68% probability of a 25-basis-point Fed hike in October, up from 57% a week ago, intensifying pressure on gold.
- •The 30-year Treasury yield nearing 5.5%, its highest in over two decades, increases the opportunity cost of holding non-yielding bullion, according to Kotak Securities.
- •Gold faces a tug-of-war between inflation risks/geopolitical tensions (safe-haven demand) and rising yields/strong risk appetite (investor preference for equities), as noted by Trading.com CEO Peter McGuire.
- •Central bank buying, including significant purchases by the People's Bank of China and Poland, provides structural support, potentially limiting gold's downside during periods of weakness.
Key Questions Answered
Gold's rally is losing momentum due to rising US Treasury yields and renewed market expectations of Federal Reserve rate hikes, which increase the opportunity cost of holding the non-yielding asset. Additionally, higher energy inflation and fiscal concerns are keeping gold under pressure around $4,300 an ounce.
Despite elevated prices and tighter monetary policy, central banks continue to provide structural support for gold through steady accumulation. For instance, the People's Bank of China purchased 20.2 tonnes of gold in August—its largest monthly purchase since late 2023—while Poland and European funds also recorded strong buying activity.
Analysts see COMEX gold support at $4,200-$4,250 and resistance at $4,360-$4,450. On the MCX, support is placed between Rs 1,49,000 and Rs 1,50,000, with resistance expected in the Rs 1,53,000-Rs 1,54,000 range.
