Where we are: Gold (COMEX) is currently trading at 4452.8, down 39.2 points or 0.87% intraday. The overnight range has been between 4396.2 and 4492.8. This price action breaks the two-month low, extending losses seen in the Asian and European sessions.
What’s driving it: The primary driver behind the gold sell-off is the marked increase in US real yields. While TIPS yields have recently fallen -6.0bp, inflationary pressures stoking the expectation of further hawkish policy and rate-hikes for longer, are keeping downward pressure on Gold. This is compounded by a broadly stronger dollar, although the DXY is currently down -0.13% at 99.13. Recent speeches from Fed officials Jefferson and Cook haven’t offered any dovish signals. Furthermore, news of fresh US strikes on Iranian military sites is adding to the pressure, diminishing gold’s safe-haven appeal even as it fuels inflationary concerns.
- US 10Y real yields remain at an elevated 2.1%, even after the recent -6.0bp dip.
- The prospect of the Fed maintaining higher interest rates for an extended period diminishes gold’s allure as a non-yielding asset.
- Speculator positioning is modestly long, with net non-commercial positions at +159,833 contracts, leaving gold vulnerable to further downside pressure.
NY session focus: The key event to watch today is the 08:30 ET release of Core PCE Price Index and Prelim GDP figures, as these numbers will likely dictate the next leg in real yields and thus gold. If the PCE data comes in hotter than the forecast 0.3%, expect a further spike in real yields and a test of the 4396.2 low. Conversely, a weaker-than-expected print could offer a temporary reprieve, targeting 4492.8. The trade that’s working is shorting gold on rallies. The pain trade would be a significant dovish surprise, sparking a short squeeze targeting 4550.