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Gold Price Outlook Mired by Spike in US Treasury Yields

Gold Talking Points

The price of gold tumbles to a fresh weekly low ($1834) following the US Non-Farm Payrolls (NFP) report, and higher US Treasury yields may keep the precious metal under pressure as the Federal Reserve lays out an outcome based approach for monetary policy.

Fundamental Forecast for Gold: Bearish

The price of bullion gives back the rebound from the November low ($1765) even though the breakdown in the US Dollar Index (DXY) carries into the yearly open, with the weakness in gold largely coinciding with the recent spike in US Treasury yields.

The US 10-Year yield pushed above the psychological 1% level earlier this week to float around its highest level since March 2020, and it remains to be seen if the NFP report will influence the monetary policy outlook as the US economy unexpectedly sheds 140K jobs in December.

Gold Price Outlook Mired by Spike in US Treasury Yields

Looking ahead, the update to the US Consumer Price Index (CPI) may keep the Federal Open Market Committee (FOMC) on the sidelines as the headline reading for inflation is expected to increase to 1.3% from 1.2% per annum in November, while the core CPI is projected to hold steady at 1.6% for the third consecutive month.

However, the data prints scheduled for later in the week may put pressure on the FOMC to further support the economy as Retail Sales are projected to narrow 0.2% in December, while the U. of Michigan Consumer Sentiment survey is expected to print at 79.2 in January versus 80.7 the month prior.

A decline in household spending along with signs of waning consumer confidence may undermine the recent spike in US Treasury yields as the FOMC Minutes from the December meeting warns that “the pace of recovery had slowed,” and future developments coming out of the US may undermine the recent spike in US Treasury yields as the threat of a protracted recovery puts pressure on Chairman Jerome Powell and Co. to further utilize its non-standard tools.

With that said, the weakness in the price of gold may persist ahead of the next FOMC interest rate decision on January 27 as long as US Treasury yields remain afloat, and bullion may continue to give back the rebound from the November low ($1765) as a closer look at gold price action shows XAU/USD breaking below near-term ascending channel support.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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