Gold prices attempted to extend their gains at the start of Tuesday’s trading session, reaching $1923.50 per ounce due to a decline in the US dollar. However, the positive performance of US Treasury bond yields quickly erased these gains, and prices are currently trading at $1912.60.
The US Dollar Index (DXY) dropped to near 104.60, but it is looking to halt these losses amid the positive performance of US bond yields. The yield on the 10-year US Treasury bonds improved to 4.30% at the time of writing, adding negative pressure to gold prices in the short and medium term.
I believe that strong economic data in August exerted downward pressure on gold prices. While the labor market had shown weakness in recent weeks, it recently rebounded with strong reports, including the ISM Services Purchasing Managers’ Index and initial jobless claims, both of which exceeded market expectations. As long as data continues to present mixed expectations, market participants can anticipate further interest rate hikes.
Investors are likely to closely monitor the upcoming release of the US Consumer Price Index (CPI) data for August as it holds significant importance ahead of the Federal Reserve’s policy meeting in September. In my opinion, this data has the potential to provide additional insights into the inflation scenario in the United States, which could significantly impact investor expectations regarding the US dollar and, consequently, gold trading.
During the past week, policymakers at the Federal Reserve expressed strong support for maintaining the current interest rate on September 20. This stance is attributed to low inflation and a weak job market. However, the attractiveness of gold prices may diminish in anticipation of a strong US dollar performance at the end of the current week. The dollar is expected to remain strong, effectively pricing in the effects of rising interest rates, coinciding with the release of more positive economic data from the United States.
In my view, investors had been expecting the possibility of the Federal Reserve raising interest rates by 25 basis points later this year, and I anticipate this may happen in the November or December meetings, especially given the more hawkish tone of the Fed, which has the potential to restrict the upside potential for gold prices in the future.