Gold futures settled with a gain on Monday, after a rebound in the U.S. dollar and higher bond yields last week took the steam out of a 2023 rally, pulling prices below the key $2,000 mark for the first time this month.
Price action
Market drivers
Gold had rallied in the wake of the March collapse of Silicon Valley Bank, which sparked fears of wider problems in the banking sector. But expectations that the Federal Reserve and other major central banks will continue to hike interest rates in an effort to bring inflation back to their targets served to undercut the yellow metal in the past week.
Rising Treasury yields raise the opportunity cost of holding a nonyielding asset like gold.
The precious metal has “started to lose its mojo,” said Naeem Aslam, chief investment officer at Zaye Capital Markets, in emailed commentary. He pointed to strength in the U.S. dollar as the main reason behind gold’s price decline.
This week’s U.S. GDP number “could bring some buyers back into the market, as traders would consider hedg[ing] their bets if the data shows more than expected weakness,” he said.
The $2,000 level for gold “continues to remain an important price point for traders and investors,” Aslam noted.
“When the price trades above this level, it raises hopes for a new record high,” he said. Most-active gold futures settled at an all-time high of $2,069.40 an ounce on Aug. 6, 2020, according to Dow Jones Market Data.
“However, when the price trades below the price point, traders believe that the precious metal could experience a significant correction,” said Aslam.
Still, in a Monday note, Rupert Rowling, a market analyst at Kinesis Money, said that “with the Fed in particular looking like it is drawing close to the end of its cycle of hikes, the negative impact of an environment in which interest rates are rising, which reduces the appeal of the non-yield-bearing physical gold, may soon be removed too.”
He added: “While market confidence remains so fragile, gold’s safe haven appeal is likely to remain attractive to investors for a good while yet, so while it will take a fresh catalyst to see the price return back above $2,000 an ounce, gold is unlikely to fall below $1,950 any time soon.”
Traders will look to U.S. economic data this week for hints on the Fed’s path for interest rates.
Data on April consumer confidence is due out Tuesday, while a reading on March durable goods orders comes Wednesday. First-quarter GDP data will be released Thursday.