Gold prices in turmoil as Treasury yields recover and US

Gold prices in turmoil as Treasury yields recover and US dollar dominates – DailyFX

Gold price forecast

  • Gold prices are slumping as they are dragged down by the recovery in US Treasury yields and the strength of the US dollar
  • The outlook for the precious metal is gradually becoming less optimistic
  • This article looks at the key XAU/USD levels to keep an eye on in the coming trading sessions

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Most Read: US Dollar Reclaims Throne; EUR/USD, GBP/USD, AUD/USD decline as sentiment deteriorates

Volatility increased on Tuesday as U.S. markets reopened following the Martin Luther King Jr. holiday on Monday. During the trading session, U.S. Treasury interest rates rose sharply, with the 10-year note climbing above the psychological 4.0% mark – a move that gave the U.S. dollar a boost against most of its peers.

The U.S. dollar's rally coupled with rising yields also dealt a blow to gold (XAU/USD), pushing its prices down more than 1.25% on the day and causing many investors to reassess the bullish outlook for the precious metal, which led to a reassessment of the bullish outlook for the precious metal in consensus trading following the Federal Reserve's about-face at its December meeting.

The trigger for Tuesday's moves was a reassessment of the Fed's monetary policy after expectations drifted away from fundamentals and became extremely dovish recently. Comments from Fed Governor Christopher Waller that policymakers should not rush to cut interest rates until it is clear that lower inflation can be sustainably sustained added to market momentum and weighed further on gold prices.

With the U.S. economy performing exceptionally well and progress against inflation stalling, the Federal Reserve will be reluctant to ease policy significantly this year because looser financing conditions could complicate the path to price stability. Once Wall Street realizes this reality, traders could begin unwinding their bets on deep interest rate cuts, which would support the greenback's recovery – a bearish outcome for gold.

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Gold prices plunged on Tuesday, completely erasing last month's gains and moving ever closer to the 50-day simple moving average, a key support indicator that sits slightly above the $2,010 area. Bulls must defend this technical ground with all their might; Failure to do so could result in a move towards $1,990 and subsequently $1,975.

On the other hand, if buyers return and trigger a bullish reversal, resistance will emerge at $2,045-$2,050. This ceiling may be difficult to break for good, but a breakout could set the stage for a rally towards $2,085, the high seen in late December. With further strength, XAU/USD could be on track to retest its record.

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Gold price chart created with TradingView