Gold falls despite lower yields as US Treasuries attract safe-haven flows

Over 2% slide in Gold comes despite lower Treasury yields.
4.963% US 10-year yield follows a 15 basis point drop as safe-haven demand strengthens.
$100 nears for WTI as Middle East tensions stoke inflation fears.

Gold (XAU/USD) is down over 2% on Thursday. Investors are seeking safety in US Treasuries as yields and US equities decline. Technology companies face growing concerns over credit risk, with investors looking for proof that substantial AI spending will generate returns. Having touched a ten-week low of $4,034, XAU/USD stands at $4,047 at the time of writing.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

XAU/USD slides as AI credit concerns and geopolitical risks favour US Treasuries

Sentiment has turned sharply negative. Exchanges of attacks between the Houthis and Saudi Arabia have heightened Middle East tensions. Energy prices are climbing as a result, alongside a US order to evacuate its embassy in Saudi Arabia and newswire reports that Washington and Jerusalem are preparing for an attack on Iran.

Safe-haven buying has driven Treasury yields sharply lower. The US 10-year yield has dropped 15 basis points to 4.963%, a level last seen on September 23.

Lower US yields would normally support bullion, but the current decline has offered no relief. With energy prices elevated, investors seeking both safety and yield are favouring US Treasuries over the non-yielding metal.

A gain of more than 1.80% has taken West Texas Intermediate (WTI), the US crude benchmark, to $99.50 per barrel. Meanwhile, the US Dollar Index (DXY) is little changed at 101.62, down some 0.02%. The index tracks the American currency against six other currencies.

At 194K, US Initial Jobless Claims for the week ending October 17 were lower than expected and below the previous reading, both at 200K. Claims reached a near 57-year low. The four-week average declined as well, to 197.75K, indicating that layoffs remain limited.

Traders have so far removed an October rate hike from their pricing despite last week's stronger-than-expected US inflation figures. Most Federal Reserve (Fed) officials favour a further increase, but want to assess the data before raising rates again.

According to Prime Terminal, the probability of an October Federal Reserve rate increase stands at 8%, effectively taking it off the table. For December, however, the chance is near 80%.

The University of Michigan Consumer Sentiment release is next on the US economic calendar. Attention next week turns to the Fed’s meeting and, subsequently, the Core Personal Consumption Expenditures (PCE) Price Index.

$4,100 gives way: XAU/USD technical analysis points to $4,000 next

Sellers have finally forced Gold below the bottom of its $4,100-$4,200 range, taking prices firmly under $4,050. Further losses are suggested by the Relative Strength Index (RSI), which indicates strengthening selling momentum.

If the decline continues, initial support comes at the $4,000 milestone, just above the July 29 cycle low of $3,996. Further down, support lies at the July 17 low of $3,959, followed by the year-to-date (YTD) low of $3,941.

A bullish reversal would first encounter resistance at $4,100. Clearing that level would open the path to $4,200, followed by the 100-day Simple Moving Average (SMA) at $4,222. Beyond that are the 50-day SMA at $4,309 and the $4,500 level.

Gold: frequently asked questions

What attracts investors to Gold?

Widely used as both a store of value and a medium of exchange, Gold has held an important place throughout human history. Today, its appeal extends beyond its lustre and use in jewellery. The precious metal is widely regarded as a safe-haven asset, making it a favoured investment during periods of turbulence. Because it is not dependent on a particular issuer or government, Gold is also commonly viewed as a hedge against inflation and currency depreciation.

Which buyers hold the most Gold?

The largest holders of Gold are central banks. To support their currencies during unsettled periods, they typically diversify reserves and purchase Gold, strengthening perceptions of their economies and currencies. Substantial Gold reserves can underpin confidence in a country's solvency. World Gold Council data show that central banks expanded their reserves by 1,136 tonnes of Gold in 2022, worth around $70 billion. No larger annual purchase has been recorded since records began. Emerging-economy central banks, including those in China, India and Turkey, are rapidly building their Gold reserves.

How does Gold move relative to other assets?

The US Dollar and US Treasuries, both key reserve and safe-haven assets, have an inverse relationship with Gold. Dollar weakness typically supports Gold, allowing investors and central banks to diversify their holdings in turbulent periods. Risk assets also tend to move in the opposite direction to Gold. Stock-market gains generally weigh on the metal, whereas selling in riskier markets usually supports it.

Which factors drive Gold prices?

Many factors influence Gold prices. Its safe-haven appeal means geopolitical instability or concerns about a deep recession can trigger rapid gains. Since Gold pays no yield, lower interest rates tend to support it, while higher borrowing costs usually exert pressure. Most price movements nevertheless hinge on the US Dollar (USD), as Gold is denominated in dollars (XAU/USD). Dollar strength generally restrains Gold prices; a weaker Dollar is more likely to lift them.