Gold advanced more than 1% on Monday, trading near $4,422 after bouncing from a daily low of $4,367. The move came as the US dollar weakened and Treasury yields eased, following last week's softer inflation readings that reduced expectations of a more hawkish Federal Reserve.
Dollar and yields in focus
The US Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.37% to 99.53. A weaker dollar tends to support gold because the metal is priced in dollars, making it cheaper for holders of other currencies.
US Treasury yields were mixed. The 10-year note yield rose about 2.5 basis points to 4.718%, but longer-dated yields remained elevated, with the 30-year bond reaching levels not seen since 2007. Bloomberg attributed that to investor concerns over the surging national debt, a flood of long-dated bond sales, and inflation that has stayed above the Fed's 2% target for the past five years. Higher yields can weigh on gold, which pays no interest, by raising the opportunity cost of holding it.
Inflation data and Fed expectations
Last week's consumer and producer price data prompted investors to trim bets on further Fed tightening. According to Prime Terminal, markets now see nearly a 69% chance that the Fed will hold rates unchanged at its next meeting, while pricing in a 66% chance of a 25-basis-point hike in December. The Fed's July meeting minutes, due Wednesday, are expected to offer more clarity on policymakers' stance.
Geopolitical and oil factors
Geopolitical tensions in the Middle East also supported gold. Crude oil prices rose, with West Texas Intermediate surging over 2.30% to $84.35 per barrel, as mixed signals suggested Iran might be shifting from a defensive to a more offensive posture. The Iranian Foreign Ministry said the “Islamabad agreement has not collapsed and the possibility of returning to it remains,” according to Al Arabiya. Fears that inflation may not resume its decline are partly fueled by the lack of progress in US-Iran talks.
Technical levels to watch
Gold has reclaimed the $4,400 level and is approaching the 100-day simple moving average (SMA) at $4,386, a technical level that had capped prices in the short term. Momentum, as measured by the Relative Strength Index (RSI), is bullish, confirming the uptrend. The next major resistance is at $4,500, followed by the 200-day SMA at $4,506, and then $4,600. On the downside, a bearish reversal would require a drop below the 100-day SMA, then the July 6 high at $4,202, followed by the 50-day SMA at $4,146 and $4,100.
Key takeaways
- Gold rose over 1% on Monday to trade near $4,422, helped by a weaker US dollar and lower Treasury yields.
- The US Dollar Index fell 0.37% to 99.53, while the 10-year Treasury yield rose slightly to 4.718%.
- Markets price in a 69% chance the Fed holds rates unchanged, with a 66% chance of a 25-basis-point hike in December.
- Technical resistance stands at $4,500 and the 200-day SMA at $4,506; support lies at the 100-day SMA at $4,386 and $4,202.
Common questions
Why does gold move inversely to the US dollar?
Gold is priced in US dollars, so when the dollar weakens, gold becomes cheaper for buyers using other currencies, which tends to boost demand and push the price higher. Conversely, a stronger dollar can weigh on gold.
What is the 100-day simple moving average?
The 100-day SMA is the average of the closing price over the past 100 trading days. It is a widely watched technical indicator that can act as support or resistance. A break above or below it can signal a potential trend change.
How do interest rates affect gold?
Gold pays no interest, so when interest rates rise, the opportunity cost of holding gold increases, making it less attractive relative to yield-bearing assets. Lower interest rates tend to support gold prices.
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In summary, gold's rally on Monday reflects a combination of a softer dollar, reduced Fed tightening expectations, and geopolitical uncertainty. The metal has reclaimed the $4,400 level and is testing key technical resistance, with the market now looking to the Fed minutes for further direction.