Gold Hits $4,400 as US Treasury Yields Retreat
Gold prices climbed to $4,400 on Friday, reversing a three-week losing streak. The rise followed a drop in US Treasury yields that offset the impact of the Federal Reserve's recent rate hike.
Gold extended gains for the second consecutive day on Friday. The metal reached session highs at the $4,400 level. This move came after prices bounced from one-and-a-half-month lows below $4,250 earlier in the week. The market aims to end a three-week losing streak.
The Federal Reserve hiked interest rates by 25 basis points to the 3.75-4% band on Wednesday. Chairman Kevin Warsh reaffirmed the bank's commitment to fight inflation. These comments boosted expectations of further rate hikes. However, they also restored confidence in the Fed’s independence. This led to a reversal in longer-term Treasury yields, providing a boost to gold.
Technical indicators show mixed momentum
Gold holds below the 200-day simple moving average. The Relative Strength Index sits just above neutral on the daily chart. This hints at stabilizing momentum. The Moving Average Convergence Divergence remains in negative territory. This suggests that upside attempts are still frail.
Key levels define price movement
Bulls face resistance ahead of the $4,450 area. This level halted recoveries on September 8, 9, and 10. Key resistance lies between the September 3 high at $4,510 and the 200-day SMA at $4,541. On the downside, session lows at $4,335 might provide support. Key support exists between the August 6 and September 16 lows at $4,223 and $4,235.
Gold remains a safe-haven asset
Gold acts as a store of value and a hedge against inflation. It does not rely on any specific issuer or government. Central banks are the biggest holders of gold. They buy the metal to diversify reserves and support currencies. Central banks added 1,136 tonnes of gold worth around $70 billion to reserves in 2022. This was the highest yearly purchase since records began. Emerging economies like China, India, and Turkey are increasing their holdings.
Gold has an inverse correlation with the US Dollar and US Treasuries. When the Dollar depreciates, Gold tends to rise. It is also inversely correlated with risk assets. A rally in the stock market weakens Gold price. Sell-offs in riskier markets favor the precious metal. Geopolitical instability or recession fears can escalate Gold prices due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates. Most moves depend on how the US Dollar behaves, as the asset is priced in dollars. According to GN auto markets/commodities: gold prices, a strong Dollar keeps the price controlled, while a weaker Dollar pushes prices up.
