Gold prices at mercy of US Treasury Bond Yields and Dollar Index

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Gold struggled to build on its significant gains over the second half of the week. The benchmark 10-year US Treasury bond yield rose above 3.4% in response to the FOMC’s decision to raise the policy rate by 75 bps. Powell, however, refrained from committing to another 75 bps raise in July at the press conference, causing yields to tumble substantially.
Because of hawkish FED forecasts, the US dollar grabbed aggressive bids and reversed some of this week’s retracement decline from a two-decade high. Investors appear to believe that the US Federal Reserve will maintain its aggressive policy tightening course in order to confront persistently rising inflation. The Fed’s so-called dot plot confirmed the bets, showing that the median projection for the federal funds rate was 3.4 percent in 2022 and 3.8 percent in 2023. As a result, the USD was able to stop a two-day losing run and reach a one-week low, denting demand for dollar-denominated gold.
On Wednesday, Fed Chairman Powell will testify before the Senate Banking Committee about the Fed’s semi-annual monetary policy. Powell will take questions after delivering his opening speech. Markets are presently pricing in a 75 basis point rate hike in July, according to the CME Group FedWatch Tool. Market positioning shows that if Powell revives expectations for a 50 basis point raise at the next meeting, US rates could fall. On the other hand, even if Powell affirms a 75-bps raise, another dramatic rally in US rates may be difficult to come by.
The gold price may also be influenced by the PMI reports due out next week. As major central banks continue to tighten their policies, investors are growing increasingly apprehensive about a worldwide recession. If PMI data from the eurozone and Germany show a loss of private-sector growth momentum, market investors may perceive it as a reminder of the growing policy gap between the European Central Bank (ECB) and the Federal Reserve (FED). In that case, gold might see renewed bearish pressure.

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