Gold Continues Rallying as Treasury Yields Drop

Gold prices extended their recovery in European trading last week, gaining for a second consecutive session after its recent low. The rebound was supported by bargain buying, a weaker U.S. dollar and falling Treasury yields, while softer U.S. economic data reduced expectations for a Federal Reserve rate increase in October. 

Investors are now awaiting additional economic indicators, particularly the August Personal Consumption Expenditures report, to reassess the outlook for U.S. monetary policy. 

Gold rose 0.5% to $4,202.31 per ounce after opening at $4,182.20 and falling to an intraday low of $4,165.81. The metal gained 1.65% earlier last week, extending its recovery from a low of around $4,111 an ounce. 

Despite the recent gains, gold remains on track for a monthly decline. Prices were down by over 5% last month, putting the metal on course for its first monthly loss in three months and its largest monthly decline since June. 

The weakness has largely been linked to a sharp rise in longer-term U.S. Treasury yields as markets adjusted their expectations for the Federal Reserve’s interest-rate path. 

The US Dollar Index fell approximately 0.2% last week after reaching a two-month high. The decline marks a pause in the dollar’s recent advance and puts the currency on track for its first loss in three sessions. A weaker dollar tends to support gold by making the dollar-priced metal more affordable for international buyers. 

Treasury yields also moved lower. The 10-year U.S. Treasury yield dropped 0.6%, marking its first decline in three sessions. Lower yields can increase the appeal of gold by reducing the relative attractiveness of interest-bearing assets. 

Recent U.S. economic data has contributed to the shift in rate expectations. Consumer confidence fell to its lowest level in over a decade, amid concerns over prices and employment. Meanwhile, U.S. job openings declined to about 7 million at the end of August from figures recorded in July. 

Following the data, CME FedWatch showed the probability of the Federal Reserve leaving rates unchanged this month rising to 53%. 

The probability of a 25-basis-point increase fell to 47%. For December, the likelihood of unchanged rates increased to 10%, while expectations for a 25-basis-point hike slipped to 90%. 

Markets are now watching the latest U.S. private-sectors employment data, second-quarter GDP figures and the August PCE report, the Federal Reserve’s preferred inflation measure. Comments from Fed officials will also be monitored for additional guidance. 

If upcoming data continues to show weakness in the U.S. economy, expectations for an October rate hike could decline further. This could place additional pressure on the dollar and Treasury yields, potentially supporting gold and other precious metals. 

Meanwhile, holdings in the SPDR Gold Trust fell from 1,058.83 metric tons to 1,057.41 metric tons. Entities that mine and sell gold, such as Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM), will be hoping the headwinds that have battered the gold market continue easing as the year draws to an end. 

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