- Gold price drops on risk-appetite improvement, and US Treasury bond yields rising.
- US Treasury bond yields rise, with 10-year TIPS, a proxy for real yields advancing above 1.30%.
- The Federal Reserve will commence its two-day monetary policy meeting, expected to deliver a 25 bps rate increase.
Gold price is tumbling across the board, down more than $30.00 or 1.59%, as US Treasury bond yields rise, while risk appetite improvement dented Gold’s demand. Hence, US equities climb moderately as the Federal Reserve’s Open Market Committee (FOMC) meeting begins soon. At the time of writing, XAU/USD is trading at $1947.26 after hitting a daily high of $1985.08
Gold price tumbles on high US Real Yields, and traders booking profits
Traders’ fears calmed in the last 48 hours after the UBS takeover of Credit Suisse, and US banks continued to try to stabilize First Republic Bank. The Federal Reserve (Fed) would begin its March monetary policy meeting, with traders expecting the Fed to raise rates by 25 bps as Powell and Co. continued their efforts to curb stubbornly high inflation.
The XAU/USD retreated most of its gains after reaching a YTD high on Monday at $2009.75. Since then, the yellow metal plunged 3.09%, as traders apparently booked profits ahead of the FOMC’s meeting.
Money market futures anticipate an 83.4% chance for a quarter percent increase in the Federal Funds Rate (FFR), according to CME FedWatch Tool. However, there is still uncertainty around the potential outcome of Fed Chair Jerome Powell’s press conference, which could cause instability in financial markets.
Another reason for XAU/USD’s fall is that US Treasury bond yields are climbing. The US 10-year Treasury bond yield is 3.58%, up nine bps. The 10-year Treasury Inflation-Protected Securities (TIPS), a proxy for US Real Yields, stands at 1.351% after tumbling as low as 1.142% on March 16.
In the meantime, the US Dollar Index, a gauge of the buck’s value against six peers, is trimming some of its earlier losses after hitting a low of 103.00, down 0.03%, at 103.274.
XAU/USD’s daily chart portrays a bullish bias in the yellow metal. However, price action in the last three days could form an evening star candlestick chart pattern. This means that Gold can drop in the near term. The first support would be the March 15 daily high turned support at $1937.31, followed by the $1900 barrier. Once cleared, the 20-day Exponential Moving Average (EMA) at $1892.89 is next, followed by the 50-day EMA at $1867.89.