US Fed pivot in focus: Why are gold prices following US Treasury yield? — Explained | Stock Market News
Source: Live Mint
1-year bond yield is quoting higher than the 10-year, with 1-year yield at 3.98% & 10-year at 3.77%.
Gold prices often follow US Treasury yields because of the inverse relationship between yields and gold’s opportunity cost. When Treasury yields rise, especially in the short term, investors may prefer bonds over gold, a non-yielding asset. The fact that the 1-year bond yield is higher than the 10-year indicates an inverted yield curve, signaling potential recessionary concerns. This inversion generally leads investors to seek safe havens like gold, supporting higher gold prices as they hedge against economic uncertainty.
After the US Fed rate cut came into focus, the US dollar and US Treasury Yield have remained inversely proportional to gold prices. Will this trend change?
As long as there are expectations of US Fed rate cuts, the trend of an inverse relationship between Treasury yields, the US dollar, and gold prices is likely to continue. A rate cut will reduce yields and weaken the dollar, making gold more attractive for investors. However, if inflationary pressures or stronger-than-expected economic data emerge, this could temporarily disrupt the trend and pressure gold prices.
‘’A fall in government bond yields increases interest in gold as an alternative to capital preservation, all other things being equal. This inverse correlation worked well last year but has started to fail this year and broke down this week when gold prices and yields started to rise simultaneously. If this is not a sign of a flight from dollar assets, it may be a sign that gold is nearing a peak.
The forced liquidation of short positions may push the gold price higher into historical highs, as the US dollar generally holds its ground against a basket of major currencies, and rising bond yields create an unfavourable environment for gold,” said Alex Kuptsikevich, Senior Market Analyst at FxPro
After the US Fed rate cut came in focus, US dollar and the US Treasury Yield have remained inversely proportional to gold prices. So, this trend change
The outlook remains positive for gold. With potential interest rate cuts on the horizon, gold is expected to benefit from increased liquidity. Additionally, global economic uncertainty, including concerns over a possible recession, will keep gold supported. In the next 3-5 months, gold prices could reach ₹77,000- ₹78,000, backed by central bank buying and a dovish shift in monetary policy.
