Gold Dips to $1,826 as US Dollar Gains and T-Bond Yields Rise

Gold prices fell around 0.1% on Tuesday to 1,826 per ounce, marking a sharp decline from its near all-time high of more than $2,070 in May 2023. The latest dip comes as US Treasury yields and the dollar continue to grow stronger amid expectations that high-interest rates are here to stay. 

Gold’s 2023 Rally

Gold prices continued to slide on Tuesday, declining to 1,826 an ounce, marking their new lowest level since February 2023. 

The current price represents a steep dip from gold’s remarkable surge in May, pushing its price to within cents of its all-time high of $2,072.49. The rally was fueled by a US banking crisis that forced investors to protect their capital through safe-haven asset investments.

The turmoil in the banking sector was triggered by the collapse of the Silicon Valley Bank (SVB) in March, pushing spot gold prices to record levels in the coming months. SVB imploded after investors pulled out $42 billion in deposits in just 10 hours, marking the fastest bank in over a decade.

The implosion led to subsequent bank runs in other banks, such as Signature and First Republic, which regulators then seized. The collapses marked the worst banking crisis since the 2008 crash. 

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Gold Under Pressure Amid Rising Yields and Stronger Dollar

To prevent the commotion from spreading further, global central banks, including the Federal Reserve, European Central Bank (ECB), Bank of Canada, and others, intervened to offer extraordinary liquidity. 

As the crisis was slowly resolved, investor sentiment toward risk assets began to return to normal levels, weighing on gold prices. But one of the main factors that erased gold’s previous gains was the strengthening US dollar and rising Treasury yields.

The two have been on an upward trajectory lately as expectations that the Fed will keep rate hikes elevated have grown stronger to bring inflation back to the desired 2% target. The hawkish remarks propelled the US dollar index to the highest level since November 2022, while the 10-year Treasury yield skyrocketed to a 16-year high. 

Higher sovereign yields and lower bond prices garnered the attention of overseas investors, who must first buy dollars to purchase bonds. This leads to a virtuous cycle of mounting rates and a stronger dollar. 

Meanwhile, the Fed’s hawkishness also put pressure on stock prices, with the tech sector experiencing a massive sell-off in September after a months-long AI-driven rally. 

Do you expect gold prices to continue trending lower for the remainder of 2023? Let us know in the comments below.