Spot gold prices broke through the psychological $2,000 mark last Friday as markets prepare for this week’s Federal Open Market Committee (FOMC) meeting, which concludes on Wednesday.
Treasury yields have eased from recent highs, but remain elevated, with the benchmark 10-year Treasury bond trading at 5.02% last week, its highest yield since 2007. It has since moved back down towards 4.80% and has been volatile.
The rise in US Treasury yields has helped to support the US dollar. In addition, perceived haven assets such as the USD and gold have rallied as the geopolitical situation in the Middle East has helped to undermine growth and risk assets.
More broadly, when the US dollar and Treasury yields rise, gold sometimes comes under selling pressure. Similarly, when US real yields rise, gold sometimes falls as it is a non-interest-bearing asset.
US real yields have been rising until 2023, and recently the 10-year part of the curve reached a 15-year high, trading above 2.60%.
The real yield is the nominal yield minus the market-priced inflation rate derived from Treasury Inflation Protected Securities (TIPS) of the same maturity.
A combination of higher nominal yields and an easing of inflation expectations has pushed it higher in this latest rise.
The interest rate market is pricing in no change to the Fed Funds target rate at Wednesday’s FOMC conclave, but Fed Chair Jerome Powell’s post-decision discussion could provide some impetus for the gold price.
