Gold prices fall to six-month low. What’s bothering traders?
Gold on the key London spot market declined to a six-month low on firm US dollar and a jump in Treasury yields. Hopes of interest rates staying higher for an unexpected period increased the demand for US assets. Despite a weaker Indian Rupee, domestic gold mirrored the trend with the most active MCX futures and shed its price to Rs 57500 per ten grams, its lowest level since March 2023.
Gold had a firm start this year by gaining more than 13 percent in the first five-month period. Since then, it has consolidated in a tight range, and last week, it came out of the stiff support zone of $1880 an ounce.
Recently, gold prices have been primarily driven by real interest rates.
As a long-term investment gold looks positive, but for the very short term it usually pays nothing. Short-term investors are attracted by higher real income by investing in government bonds and currency which make gold less attractive in relative terms.
Expectations that the higher US rates may continue for an unexpected period lifted the value of US assets.
The real yield on the US 10-year treasury bond has headed higher this year and is now at a decade high. The US greenback was almost steady in the first two quarters but started gaining quickly. The dollar Index, which measures the value of US currency, has posted more than seven percent since mid-July and is currently placed well above the 106 level.
Gold and the U.S. dollar often have an inverse relationship. When the dollar strengthens, the price of gold in dollars typically falls, and vice versa.
This inverse correlation is because gold is priced in U.S. dollars worldwide. When the dollar rises in value, it takes fewer dollars to buy the same amount of gold, leading to a decrease in the gold
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