Price Action
Gold futures for December delivery rose 0.3% to $1,947.40 an ounce on Comex, marking a weekly fall of 1%. December silver also gained 0.3%, trading at $23.315, but was headed for a weekly pullback of more than 5%.
Market Drivers
Recent strong U.S. economic data and a rally in oil prices have pushed up Treasury yields and strengthened the U.S. dollar. This has raised concerns that the Federal Reserve may need to raise interest rates further or keep them elevated for an extended period. Rising yields can be negative for gold, as it increases the opportunity cost of holding a nonyielding asset. Additionally, a stronger dollar makes commodities priced in the unit more expensive for users of other currencies.
According to market analyst Rupert Rowling at Kinesis Money, the next phase of ‘higher for longer’ interest rates poses a challenge to gold’s ability to continue trading at such elevated levels. With the lack of yield in physical gold, it becomes less attractive to investors and traders when interest rates are high and rising.
Although gold has pulled back from its earlier high above $2,000 an ounce, it still remains historically high at the $1,920 level. Rowling notes that the key factor keeping gold buoyant despite rising interest rates has been the fragility of market confidence. However, as economic data continues to show that recession fears are overdone, trading activity is expected to shift towards riskier assets and away from the ultimate haven asset in gold.