Gold prices rallied by over one per cent on Monday, ascending to a five-week high, as the US Dollar and US Treasury yields experienced sharp declines. The precious metal found support from the weakening of traditional safe-haven alternatives, against a backdrop of complex market sentiment oscillating between a general risk-on appetite and persistent uncertainty surrounding global trade negotiations.
By late trading, spot gold (XAU/USD) was trading at $3,397, having rebounded from earlier daily lows of $3,338.
The strong performance of gold was primarily attributed to the weakening of the US Dollar and the downward trajectory of Treasury yields. The benchmark 10-year US Treasury note plunged over six and a half basis points (bps) to settle at 4.356 per cent. Consequently, US real yields, which adjust for inflation expectations, also fell by six basis points to 1.946 per cent. Lower real yields diminish the opportunity cost of holding non-yielding assets like gold, making the precious metal more attractive to investors. Simultaneously, the US Dollar Index (DXY), which measures the greenback’s strength against a basket of six major currencies, declined by 0.64 per cent to 97.83, further boosting gold’s appeal for international buyers as it becomes cheaper in other currency terms.
Despite an improvement in broader risk appetite, partly driven by anticipation of upcoming US corporate earnings, a looming August 1 tariff deadline imposed by the White House continues to cast a shadow of unease over global trade relations. Investors remain wary about the prospects of comprehensive trade deals between the United States and its key trading partners, including the European Union (EU), Canada, and Mexico.
In the realm of monetary policy, market expectations for the Federal Reserve’s stance at its upcoming July 30 meeting remain largely unchanged. Interest rate probability indicates a 97 per cent chance that the US central bank will maintain its current rates, with only a three per cent probability of a 25-basis-point rate cut. This high probability of a policy hold provides a degree of stability, yet the uncertainty around trade deals and other external factors keeps gold on investors’ radar.
Meanwhile, the People’s Bank of China (PBoC) also kept its key lending rates unchanged at its latest meeting, a move widely anticipated by analysts.
The US economic docket for the current week remains relatively light, with scheduled releases including housing data, jobless claims for the week ending July 19, and durable goods orders data. Last week’s US economic data presented a mixed picture as consumer sentiment showed an improvement, but consumer inflation notably rose sharply in June, edging towards the three per cent threshold, a level that could keep the Fed vigilant. While the Producer Price Index (PPI) indicated some signs of improvement, a strong Retail Sales report underscored the resilience of American consumers, even as prices continued their upward trajectory.
From a technical perspective, gold’s rally successfully cleared the resistance presented by the $3,300-$3,350 range, reaching an intraday high of $3,401 before slightly retreating. The bullish momentum appears robust, a trend confirmed by the Relative Strength Index (RSI), which is edging higher towards the 60.00 level, indicating that buyers are firmly in control.
