Gold fell by nearly 3% as the U.S. dollar strengthened, bond yields rose, and positive data was released
Global gold prices saw a sharp decline during Friday’s trading, with the precious metal falling to its lowest levels in over a week, affected by the rise of the US dollar and the increase in US Treasury yields, alongside growing expectations that the Federal Reserve will maintain its hawkish monetary policy.
Gold is currently trading near $4525 per ounce, down more than 3% during today’s trading, amid strong pressure from financial markets and recent U.S. economic data.
Why did gold prices fall today?
The decline in gold prices resulted from several key factors, most notably:
- The rise of the US dollar
- The rise in US Treasury yields
- Increased expectations of interest rate hikes
- Strong US inflation and consumer spending data
These factors typically have a negative impact on gold, as it is considered a non-yielding asset, making it less attractive when interest rates and yields rise.
U.S. Inflation Data Weighs on Gold
U.S. economic data showed the annual inflation rate rising to 3.8% in April, up from 3.3% in March, which came in higher than market expectations.
The Producer Price Index also rose by 6% year-over-year, up from 4.3% previously, a clear indication of persistent inflationary pressures within the U.S. economy.
Meanwhile, U.S. retail sales rose by 0.5% in April, reflecting continued strength in consumer spending.
This data reinforced investors’ expectations that the Federal Reserve may keep interest rates high for longer, or even move toward an additional rate hike by the end of the year.
Rising Probability of a U.S. Rate Hike
Market expectations currently indicate a roughly 45% probability that the Federal Reserve will raise interest rates at its December meeting, compared to only about 33% at the start of the week.
Rising interest rates strengthen the U.S. dollar and push up bond yields, which puts direct pressure on gold.
US Bond Yields at Record Highs US
Treasury yields continued their strong rise, with the 10-year yield hitting its highest level in a full year.
Rising yields are one of the most significant negative factors for gold, as they increase the appeal of yield-generating assets relative to the precious metal.
Peace Negotiations Stalled So Far
Peace talks between the United States and Iran continued to stall, amid mutual statements reflecting ongoing tension.
Abbas Araghchi said the United States is sending “contradictory messages” regarding the negotiations, stressing that Iran is prepared for all scenarios, whether diplomatic or military.
Outcomes of the Trump-Xi Summit Under Market
Scrutiny Investors also followed the outcomes of the summit held in Beijing between Donald Trump and Chinese President Xi Jinping, which addressed global trade, bilateral investments, and the Iran issue.
Donald Trump stated that he is open to Iran suspending its nuclear program for 20 years, but he stressed the need for a genuine commitment from Tehran.
He also warned of the possibility of resuming U.S. military operations against Iranian infrastructure if an agreement could not be reached.
Xi Jinping also noted that tensions regarding Taiwan could increase global geopolitical instability.
Will gold prices rise again?
Despite the sharp decline, gold and silver prices continue to experience significant volatility, and some analysts believe that profit-taking in short positions could support an upward rebound in the coming period.
Traders are watching for any sudden market movements in the coming hours or at the start of next week’s trading, especially given the ongoing political and economic tensions.
Technical Analysis of Gold
You can view the full technical analysis of gold prices here
