The spot gold price cleared the psychological US$ 2,000 level last Friday as markets prepare for this week’s Federal Open Market Committee (FOMC) meeting that will conclude on Wednesday.
Treasury yields have eased from recent peaks but remain elevated with the benchmark 10-year bond trading at 5.02% last week, its highest yield since 2007. It consequently raced back down toward 4.80% and has seen whippy price action since.
The run-up in the return on US Government debt has helped to underpin the US Dollar. In addition, perceived haven assets such as USD and gold have appreciated with the geopolitical situation in the Middle East assisting to undermine growth and risk-orientated assets.
In loose terms, when the US Dollar and Treasury yields rise, gold sometimes comes under selling pressure. Similarly, when US real yields are advancing, gold occasionally slips as it is a non-interest-bearing asset.
US real yields have been on the march higher through 2023 and recently stretched to a 15-year peak at the 10-year part of the curve, trading above 2.60%.
The real yield is the nominal yield less the market-priced inflation rate derived from Treasury inflation-protected securities (TIPS) for the same tenor.
A combination of higher nominal yields and an easing of inflation expectations has boosted it in this latest surge.
