Where we are: Gold is trading around $4,545, modestly above the overnight low, but still under pressure after last week’s nearly 4% decline. The yellow metal remains below key resistance at $4,560 and is struggling to gain traction ahead of the US open. The range has been relatively tight so far this morning, with some tentative buying interest emerging around the $4,540 level.
What’s driving it: Rising US real yields continue to exert downward pressure on gold. The 10-year TIPS yield edged up to 2%, adding to the headwinds for bullion as investors demand higher returns from risk-free assets. While breakeven inflation also ticked up to 2.49%, the real yield move is the dominant driver. Absent fresh domestic catalysts, gold is beholden to this real rate dynamic for now.
- US 10Y Real Yield at 2% (+1.0bp d/d) continues to climb, increasing the opportunity cost of holding gold.
- 10Y Breakeven Inflation also increased, up 2.0bp d/d, but the nominal yield increase is overshadowing this move.
- CFTC data shows net non-commercial positions are modestly long at +171,622 contracts, offering little support against the broader trend.
NY session focus: All eyes will be on the US data releases later this week, but for today, the market will likely remain focused on yield dynamics. Watch for the 10-year real yield to potentially test 2.05%; a break above that could trigger another leg lower in gold. Key support to watch is around $4,530. The trade at risk is any long position predicated on geopolitical risk, which seems to be fading somewhat. The pain trade is a sharp reversal in real yields, driven by a dovish surprise, which could trigger a rapid short squeeze.