Gold price vulnerable as Treasury yields leap on Powell push
Gold steadied this week as a hawkish Fed accelerated hike expectations; real yields could be the key for gold as higher nominal yields kick in and Fed rate rises might lower inflation expectations.
![](http://a.c-dn.net/c/content/dam/publicsites/igcom/uk/images/news-article-image-folder/BG_gold_98498465655.jpg/jcr:content/renditions/original-size.webp)
Gold price headwinds are building as the Federal Reserve races to catch up with the curve.
Fed Chair Jerome Powell kicked things off on Monday by not ruling out a 50 basis-point (bp) hike at a Federal Open Market Committee (FOMC) meeting this year, if necessary.
Specifically, he said, ‘if we conclude that it is appropriate to move aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so.’
The market is now pricing in around seven rate hikes of 25 bp in the six meetings left in 2022, implying a 50 bp move at some point.
On Tuesday, St. Louis Fed President James Bullard added to his hawkish credentials by saying that ‘faster is better’ when it comes to rate hikes.
These hawkish comments have lifted Treasury yields across the curve.
This environment can manifest itself in two ways for a lower gold price. The higher and rising nominal rate of return on fixed interest assets presents itself as better alternative to a non-yielding asset such as gold.
Secondly, if the Fed is perceived to be genuine about fighting inflation, then market priced inflation may come down. This increases the real return on debt investments. The real return being the nominal rate less the inflation rate over the same tenure.
Looking at the chart below, we can see that the rally in gold earlier this month coincided with the increase in market priced ten-year breakeven inflation. This pushed down ten-year real yields.
Following that peak in gold, the ten-year breakeven rate remained relatively steady, but nominal yields picked up, lifting real yields and gold fell at the same time.
If the Fed continues to recognise that they need to raise rates aggressively, this could undermine gold further.
The outlier to this perspective is the unknown consequences of the Russian invasion of Ukraine and a closer look at the price action is warranted.
Gold, US ten-year nominal, US ten-year inflation and US ten-year real yield
![Gold, US ten-year nominal, US ten-year inflation and US ten-year real yield](http://a.c-dn.net/c/content/dam/publicsites/igcom/au/images/News-and-articles/Gold-Price-Vulnerable-as-Treasury-Yields-Leap-on-Powell-Push.-Where-to-for-XAUUSD_body_Picture_3.png/jcr:content/renditions/original-size.webp)
Gold technical analysis
There are two observations to note in the gold chart below. A double top formation and a head and shoulders formation.
The all time high for gold was achieved in July 2020 at 2,075.14. Earlier this month the price rallied toward it but failed and made a peak of 2,070.42 creating a double top. This failure to break higher could be a bearish signal.
A bearish head and shoulder pattern is emerging and a break below the neckline may confirm the pattern.
Risk management techniques are always crucial and need to be looked at closely.
![Gold technical analysis](http://a.c-dn.net/c/content/dam/publicsites/igcom/au/images/News-and-articles/Gold-Price-Vulnerable-as-Treasury-Yields-Leap-on-Powell-Push.-Where-to-for-XAUUSD_body_Picture_1.png/jcr:content/renditions/original-size.webp)
Follow Daniel McCarthy on Twitter at @DanMcCarthyFX
This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. This information Advice given in this article is general in nature and is not intended to influence any person’s decisions about investing or financial products.
The material on this page does not contain a record of IG’s trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.
Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.
![](http://a.c-dn.net/c/content/dam/publicsites/igcom/uk/images/ContentImage/Commodities global component NA banner.jpg/jcr:content/renditions/original-size.webp)
Trade on commodities
Trade commodity futures, as well as 27 commodity markets with no fixed expiries.1
- Wide range of popular and niche metals, energies and softs
- Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
- View continuous charting, backdated for up to five years
1In the case of all DFBs, there is a fixed expiry at some point in the future.
Live prices on most popular markets
- Forex
- Shares
- Indices
See more forex live prices
See more shares live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
See more indices live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.