Gold Prices Hit Fresh 7-Week Lows, Fear Index Subsides
New York (May 9) The combination of a firm dollar, rising global bond yields and a further decline in the VIX volatility index has undermined support for gold with prices at fresh 7-week lows.
US Treasury prices declined during the US session on Monday and there was a further small dip in Asia with US 10-year yields approaching the 2.40% level.
Cleveland Fed President Mester continued to push for a further rate increase in June to continue the process of normalisation. Futures markets indicated that the chances of a rate hike at the next FOMC meeting were close to 88% and expectations of a rate increase will tend to curb gold support, although the hike is now effectively pried in which will limit the scope for further aggressive selling.
Eurozone and UK bond yields increased during the European session on Tuesday and the decline in fixed-income prices had some impact in curbing demand for gold.
The dollar also made headway during the European session with USD/JPY initially pushing to 7-week highs above 113.70 while EUR/USD dipped below the 1.0900 level.
The firm dollar also curbed potential gold demand, especially as underlying risk appetite held steady.
The US VIX index has continued to decline with a close below 10.0 in US trading on Monday, the lowest level since December 1993, which also had an important impact in curbing potential gold support as overall fear has continued to subside.
There was a further small decline in SPDR Gold Trust holdings according to the latest data with a dip of around 1% over the past two weeks.
The positive USD/JPY trend continued in early New York with a break above 114.00 while US 10-year yields touched 2.40%. In this environment, gold remained on the defensive and dipped to fresh 7-week lows near $1,220 per ounce.
The latest job-openings data will be released on Tuesday, but there are no major US economic releases until Friday which will tend to curb market activity. Gold prices are likely to be driven by developments in bond yields unless there is a major move in currency markets.
Source: EconomicCalendar
