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Gold 3,553.77/oz
Silver 45.39/oz
Platinum 1,495.34/oz
Palladium 1,428.72/oz
Price Update

Gold Value Leaps Obstacles Despite USD Surge, Anticipating Federal Reserve Actions

Gold Value Leaps Obstacles Despite USD Surge, Anticipating Federal Reserve Actions
Gold Value Leaps Obstacles Despite USD Surge, Anticipating Federal Reserve Actions

The price of gold surpassed the significant threshold of US$ 2,000 per ounce this past Friday. Investors are on edge as they await the conclusion of the Federal Open Market Committee (FOMC) meeting this Wednesday.

Despite easing slightly, Treasury yields remain high. The 10-year bond experienced a surge last week, trading at 5.02%, a level unseen since 2007. After this peak, the yield quickly dropped to around 4.80% and has since demonstrated high volatility.

The increase in ROI on US government debt has lent support to the US dollar. Moreover, the geopolitical unrest in the Middle East has fuelled the appreciation of safe haven assets like the USD and gold, simultaneously devaluing growth and risk-linked assets.

Generally, the price of gold experiences pressure when the US dollar and Treasury yields increase. This is because gold, a non-interest-bearing asset, tends to lose value whenever real yields in the US rise.

US real yields have been steadily increasing throughout 2023, and recently reached a 15-year high above 2.60% for the 10-year portion of the yield curve. The real yield is calculated by subtracting the market’s expected inflation rate (derived from Treasury Inflation-Protected Securities or TIPS) from the nominal yield.

This recent real yield surge has been driven by a combination of increased nominal yields and diminished inflation expectations.

The rising 10-year Treasury yields, real yields and DXY (USD) index have not yet impacted the price of gold, but investors should remain vigilant of sudden movements in these markets.

While the interest rate market expects no alterations to the Federal funds target rate during Wednesday’s FOMC meeting, commentary from Federal Reserve Chair Jerome Powell following the decision could potentially sway the gold price.

In response to these market fluctuations, gold’s volatility, as quantified by the GVZ index, has increased. The GVZ index operates similarly to the VIX index for the S&P 500, providing an estimate of future price volatility.

Simultaneously, the range of the 21-day Simple Moving Average (SMA) based Bollinger Bands has widened, indicating increased historical volatility.