Where we are: Gold currently trades around $4,540 per ounce, testing its lowest level since late March. Overnight, bullion remained in a narrow range but is showing downside pressure as NY traders prepare to come online. The key level to watch remains the March low around $4,500, a break of which could trigger further selling. The market remains below last week’s close and has struggled to regain momentum.
What’s driving it: Rising real yields in the US are the primary headwind for Gold. While the 10Y breakeven inflation rate increased 2.0bp to 2.48%, the 10Y Real Yield remains elevated at 1.94%. Middle East jitters have fuelled inflation fears, supporting breakevens, but this hasn’t been enough to offset the impact of rising nominal yields. The modestly long speculative positioning, with net non-commercial holdings at +159,571 contracts, also leaves the market vulnerable to further downside should momentum continue to build.
- US 10Y Real Yield is at 1.94%, maintaining downward pressure on Gold.
- Speculator positioning is at the 4th percentile, leaving Gold vulnerable to a potential squeeze.
- Geopolitical risks in the Middle East are currently being outweighed by broader macro forces.
NY session focus: Focus will remain on US yields as traders look ahead to upcoming inflation data. Keep an eye on the 10Y yield, as a further push above 4.4% would likely weigh on Gold. Watch for any headlines related to Iran peace talks or the Strait of Hormuz, as these could trigger short-term volatility. The trade that’s working is shorting Gold on rallies towards $4,550, while the trade at risk is holding long positions anticipating a risk-off move. The pain trade for Gold would be a sharp reversal in real yields combined with a renewed wave of safe-haven buying.