Gold prices declined for a third consecutive trading session on Tuesday. Spot gold fell 0.2% to $4,319.98 per ounce by 0100 GMT. This downturn pushed bullion to its lowest level in over two months.
Treasury yields, which are the returns investors get on government bonds, have significantly influenced gold's recent performance. The yields on the benchmark 10-year U.S. Treasury note reached a two-week high. Higher Treasury yields increase the opportunity cost of holding non-yielding assets like gold, making it less attractive to investors.
This trend fits into the broader global economic narrative of rising inflation and potential interest rate hikes. Central banks, especially the U.S. Federal Reserve, are closely watching economic activity. Stronger economic data and job growth in the U.S. suggest that the Federal Reserve might keep interest rates unchanged for longer. Goldman Sachs, a major financial institution, expects the U.S. Federal Reserve to maintain current interest rates through 2026. They anticipate interest rate cuts will be delayed until 2027.
Analysts are adjusting their forecasts based on these economic signals. Citi, another prominent financial firm, reduced its near-term gold price target to $4,000 per ounce from $4,300 per ounce. This reduction reflects their expectation of higher U.S. interest rates this year. Citi also noted that gold's recent strength would be difficult to sustain without strong physical demand.
The current market sentiment indicates a significant shift in investor expectations. Traders are now pricing in more than a 70% chance of a Federal Reserve interest rate hike by December, according to the CME FedWatch tool. This tool tracks the likelihood of changes in U.S. interest rates. Such expectations further pressure gold prices, as higher rates typically strengthen the dollar and make gold more expensive for international buyers. The SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, reported a 0.5% decrease in its holdings to 929.62 metric tons on Friday. This reduction in holdings shows a decrease in investor interest in gold-backed investments. The Middle East conflict, while usually a driver for safe-haven assets like gold, is now also contributing to concerns about inflation and potential rate hikes. Other precious metals also saw declines, with spot silver falling 0.6% to $67.84 per ounce and platinum losing 0.2% to $1,750.33 per ounce.