Where we are: Gold is trading around $4,495 an ounce, modestly weaker after an overnight range of $4,480-$4,510. The yellow metal is struggling to hold ground, pressured by a stronger dollar and rising real yields, and trading below yesterday’s NY close.
What’s driving it: Rising US real yields are the primary headwind for gold. The 10-year TIPS yield has climbed to 2.18%, adding 5bp to the downside pressure as market participants increasingly anticipate that the Fed may be required to sustain or even tighten policy if inflation proves to be more persistent than anticipated. The pullback in 10Y breakevens, down 5bp to 2.44%, further reinforces this dynamic. Rising yields are amplified by a stronger dollar, with the broad USD index climbing to 119.28.
- Barr’s speech on financial health reinforces the Fed’s current focus on price stability, reducing the likelihood of dovish pivot.
- Speculator positioning remains modestly long, with net non-commercial positions at +171,622 contracts, leaving gold exposed to potential liquidation if the current downtrend persists.
- The increasing likelihood of continued armed conflict in the Middle East is supporting oil; Goldman Sachs notes oil stockpiles are falling at a record pace.
NY session focus: The key event risk for gold today is the 08:30 ET release of the Philly Fed Manufacturing Index and Unemployment Claims, followed by Flash Manufacturing and Services PMIs at 09:45 ET. A strong showing in these indicators could accelerate the rise in yields and further pressure gold. Watch for a break below $4,480, which could open the door to a test of $4,450. The trade that’s working is shorting gold on rallies. The at-risk trade is dip-buying. The pain trade for gold is a sudden dovish shift from the Fed combined with escalating geopolitical risks that would reignite inflation fears and demand for safe-haven assets.