Last week, the currency market experienced high volatility days, with the dollar index ranging from 112 at the beginning of the week, to 114 towards the end of the week. USD side movement continued this week as well and despite lowering on the first day of the week, later could regain and hold its value. US Treasury yields also experienced volatility days, however mostly bullish. US 10-year bond yield raised the whole week above 3.8% and ended above 4.0%. Increasing bond yields continued this week as well and currently, it is at the sensitive level of 4.150%, while market risk also again rising. International Monetary Fund Managing Director Kristalina Georgieva warned of a growing risk of global recession while stressing about inflation control.
U.S. 10-Year Treasury Note Yields at 4.150%
According to the data published last Friday, US September inflation rose by 0.4% monthly, and annual inflation reached 8.2%, dropping only slightly from last month’s 8.3%, however, it is still so high and more than market estimates. The release of the CPI report brought market volatility, with the US dollar and Yields moving upwards immediately, and stocks plummeting. At the same time, these data increased risk aversion sentiment, as rising inflation increases the possibility of another sharp rate hike by the FOMC. Gold prices were affected by US dollar value, falling heavily as the dollar rallied after US inflation data.
As market risk increases, gold continues its downtrend. Yellow metal prices fell to a new three-week low on Thursday as expectations of more Federal Reserve interest rate hikes stimulated the markets to pay more interest. At the current prices, US bond yields rose to their highest level since the 2008 financial crisis.
This strong outlook after such huge yields for the dollar pressured gold prices while rising interest rates also increased the opportunity cost of holding gold. Minneapolis Fed President Neel Kashkari warned that overheated inflation could spur the Fed into raising its benchmark interest rate above 4.75%, which can be the highest level since 2007. Hawkish comments by officials can only increase the market tension and risk.
From the technical point of view also we can see this pressure. In the weekly chart, as you can see below, $1,680 and 1,733 are the key levels, and trading under these levels can hold pressure on the gold price. On the flip side, breathing above 1,680 can change the short-term trend.