Gold Stays Near 1-Month Lows as US Dollar and Yields Hold Ground

Published Aug 10, 2023 10:26PM ET

Summary: Gold prices held near one-month lows as the US dollar and bond yields remained strong, disregarding the cooler-than-expected US inflation figures for last month. Despite a 0.1% increase, gold was still trading near its lowest level since July 7. The US consumer price index (CPI) climbed 3.2% on an annual basis, slightly lower than the Reuters poll forecast. This has raised expectations that the US central bank will refrain from further interest rate hikes in 2023.

Key Takeaways:

• Gold prices remained close to one-month lows
• The US dollar and bond yields stood strong
• US inflation figures for last month were lower than expected
• Raised expectations of no further interest rate hikes in 2023

Analysis:

Gold prices have experienced a challenging week, with a decline of about 1.4%. Despite a temporary increase of 0.8% after the release of US CPI data, gold lacked conviction and failed to maintain its momentum. The prevailing sentiment in the market suggests that the 3.2% increase in the CPI, although lower than expected, is still a cause for concern. Matt Simpson, a senior analyst at City Index, emphasizes that the core CPI at 4.7% is still not favorable, leading to doubts about the US central bank’s next move.

“Once the CPI dust had settled, markets seemed to remember that core CPI at 4.7% is still not great – even if it was slower than expected,” said Matt Simpson.

Furthermore, comments from Mary Daly, a Fed member, indicating that the decision on interest rates at the next meeting is “yet to be determined” contributed to the strengthening of the US dollar. The potential uncertainty regarding future rate hikes further impacted gold prices.

One of the main factors influencing gold prices is the inverse relationship between interest rates and the precious metal. When interest rates rise, bond yields also increase, making non-yielding assets like gold less attractive. As a result, investors tend to seek higher returns in other assets rather than holding gold.

Looking ahead, investors should closely monitor the movement of the US dollar and bond yields as they play a significant role in gold price dynamics. A stronger dollar and higher yields will likely continue to exert downward pressure on gold. Additionally, any indications of future interest rate hikes by the US central bank could further impact the precious metal.

Expert Insight:

In times of uncertain market conditions, investors should consider the role of gold as a diversification tool within their investment portfolios. While short-term price movements can be influenced by various factors, the long-term fundamentals of gold remain strong.

Gold has historically proven to be a valuable hedge against inflation and economic uncertainties. As central banks around the world pursue loose monetary policies, the potential for rising inflation increases. In such an environment, gold can provide a reliable store of value and protect against erosion of purchasing power.

Investors should assess their risk profiles and investment objectives before allocating a portion of their portfolio to gold. Diversification across multiple asset classes, including gold, can help mitigate risks and provide stability during volatile market periods.

Conclusion:

Gold prices have remained under pressure due to the strength of the US dollar and bond yields, despite the lower-than-expected US inflation figures. Investors should be cautious while considering the short-term fluctuations of gold prices and focus on the long-term benefits it offers as a diversification tool and hedge against inflation. By staying informed and analyzing market trends, investors can make well-informed decisions to optimize their portfolios.

Reference: Gold frail as US dollar, yields hold ground after inflation data