Higher Yields Puts Gold Prices Under Renewed Pressure

A surge in oil prices has underpinned equity markets, increased bond yields and also helped support the dollar. This combination put downward pressure on gold prices with a fresh test of support.

US third-quarter GDP was revised up to 3.2% from 2.9% previously with a stronger estimate of consumer spending. There was also a much stronger than expected November reading for consumer confidence, which increased to a 9-year high of 107.1 from a revised 100.8 the previous month.

The dollar gained immediate support following the GDP data, but was unable to sustain the initial advance with USD/JPY resistance on approach to 113.30 and a dip back below the 113.00 level.

The dollar retreat from highs also helped gold recover from initial losses and there was also relief that support held on approach to the $1,180 area and gold rallied back towards $1,190.

Federal Reserve Governor Powell stated that the case for an increase in rates had clearly strengthened since the November meeting, reinforcing expectations of a December hike, although this has already been priced in and gold consolidated in the $1,190 area.

The dollar edged lower late in the US session and briefly spiked lower towards 112.00 against the yen in Asia with gold advancing to highs around $1,193, but overall gains faded quickly as the dollar found solid buying support on dips.

Oil prices dominated the European session on Wednesday with prices surging on optimistic talk from OPEC delegates that a deal would be reached. There appeared to have been concessions from both Saudi Arabia and Iran over the issue of production cuts and oil prices surged by over 7% on the session.

Higher oil prices also pushed the dollar higher against the yen, which tended to undermine gold, although the impact was offset by US losses elsewhere as EUR/USD temporarily moved above the 1.0650 level. Higher oil prices were also important in putting upward pressure on bond yields, which undermined gold support as the 10-year yield increased to 2.35%. A firmer tone in risk appetite also tended to undermine gold support, although gains in equities were relatively limited.

Gold overall retreated back towards $1,185 ahead of the US open as the dollar gained fresh support.

There is the risk of volatile trading conditions during the New York session given the combination of oil-price moves and month-end positioning as the OPEC meeting continues.

The US ADP employment data will also be watched closely ahead of Friday’s employment report with underlying dollar trends remaining important for overall gold developments.

Gold Prices 4H Chart


Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.