Where we are: Gold is trading at $4135.2, down 1.61% on the day. This move is largely unwinding yesterday’s gains, with price action now sitting below the prior New York close. The overnight session saw a sharp drop, breaking through the $4150 support level as hawkish Fed sentiment began to bite.
What’s driving it: The primary driver for gold remains the trajectory of US real yields, which are currently trending lower, providing a tailwind. However, this is being overshadowed by a strengthening dollar, fueled by renewed hawkish bets on the Federal Reserve. Despite speeches from various central bankers, including the BIS and Fed, no significant deviations from the expected policy path have emerged, leaving real yields as the dominant, albeit muted, domestic factor.
- US 10Y Real Yields are ticking lower, currently at 2.21% (-2.0bp d/d), a clear supportive signal for bullion.
- The dollar index (DXY) has pushed higher to 101.28 (+0.26% d/d), acting as a headwind by increasing the cost of gold for non-dollar buyers.
- Speculative positioning in gold futures shows net non-commercials at +180,220 contracts, a modestly long stance that is not yet at extreme levels to suggest a major squeeze risk.
NY session focus: The 09:45 ET release of the US Flash Manufacturing and Services PMIs will be the immediate focus. While both are expected to show a slight deceleration from prior prints, any significant deviation could sway Fed expectations and, by extension, gold prices. We’ll be watching for any follow-through on the dollar’s strength and its impact on the 2s10s spread, which currently sits at 0.27%. The pain trade for gold here is a sustained move higher in real yields coupled with a stronger dollar, which would likely push prices back towards the $4000 psychological level.