Gold Dips After Thursday’s Spike as US Treasury Yields, Dollar Strengthen
Early on Friday, gold is trading bearish after a sharp spike in the previous session as US Treasury yields and dollar make gains, denting the safe haven appeal of the precious metal. At the time of writing, GOLD is trading at a little above $1,734.
Gold prices surged to the highest level seen since March 1 on Thursday, supported by the Fed’s commitment to remain dovish for a longer period of time. However, the previous session also saw the benchmark 10-year US Treasury yields surge to over 1.75%, which dragged the yellow metal prices lower as higher bond yields increase the opportunity cost of holding non-yielding bullion.
Rising treasury yields also sent the US dollar higher, which also added to further bearishness in gold. As we know, the yellow metal shares a negative correlation with the greenback, as a stronger dollar makes the commodity more expensive for holders of other currencies to purchase.
Despite the present weakness, gold is set to post a weekly gain after Thursday’s surge, as optimistic economic data from around the world is offset by reigning uncertainties about the economic outlook going forward. For instance, even as the Fed upgraded economic growth projections for the US, it maintained the need to remain dovish at least through 2023 for employment and inflation to make a complete recovery.
Similarly, in its monetary policy meeting yesterday, the BOE also admitted that UK’s economy appears to be on its way towards recovery but offered a cautious outlook about the long-term prospects amid uncertainties. The BOJ also appeared more cautious about Japan’s economic recovery from the pandemic-driven slump.
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