Gold prices reached a six-and-a-half month low as the $1,900-an-ounce mark, which it had held since August, crumbled under the pressure of investors shifting their money towards the dollar and Treasury yields. The most-active futures contract for gold on New York’s Comex was trading at $1,894 an ounce, down 1.3%. The spot gold price also hit its lowest level since March, reaching $1,876.87. The strength of the US dollar and rising Treasury yields are making the dollar more attractive for investors.
The US dollar continues to rally as Treasury yields increase, leading to expectations that the US growth exceptionalism story is far from over. This has been attributed to a stronger-than-expected 0.2% increase in orders for long-lasting goods in August, driven by higher defense spending. However, consumer spending in the US is expected to slow in the final three months of the year due to cooling labor market trends and wage growth, along with rising inflation concerns. The Conference Board reported that consumer confidence in September dropped for a second consecutive month, reaching levels close to recession. Capital spending intentions are likely to soften as interest rates remain high, supporting a stronger dollar.
Gold is not the only asset affected by the strength of the dollar and rising Treasury yields. The reached highs not seen since November 2022, and yields, benchmarked to the , reached 16-year highs not seen since July 2007. The Federal Reserve’s projection of another quarter-percentage point rate increase by the year-end has contributed to the surge in alternative assets. While rates were left unchanged for September, Fed Chair Jerome Powell mentioned that energy-driven inflation is a concern, and the central bank is prepared to raise rates further if necessary. Economists fear that the Fed’s hawkish stance could dampen global growth, but many agree that measures are needed to curb inflation and achieve the annual target of 2%.