Gold prices are trading modestly higher in the APAC hours following a sharp drop earlier this week. However, the lackluster rebound isn't inspiring confidence as bullion headwinds strengthen. Get your market update from FxWestwater here:
The outlook for bullion prices faces mounting pressures, including the Fed andGold prices rose above the 1,900 level overnight, but that hasn’t inspired much confidence in the yellow metal following a sharp drop earlier this week. The Fed’s rate hike path has firmed up in recent weeks, pushing rates higher to bullion’s expense. The market has responded in a risk-off fashion, pushing equity prices lower.
Instead, investors have flocked to the US Dollar, pushing the DXY index to its highest level since March 2020 and within 1% of the 2016 highs. At the same time, market-based inflation expectations have cooled. Both of those are headwinds for gold, compounding gold’s negative outlook further. The US 1-year breakeven rate – a proxy for where the market sees inflation one year out – is trading near its lowest level since February at just above 5%.
The fact that gold hasn’t rebounded despite a major pullback in US equity prices and broader risk-off flows poses a big concern moving forward. A drop in real yields, usually a tailwind, didn’t provide enough juice for more than today’s very modest bounce. That said, gold doesn’t appear to be an appealing asset to own in current conditions and traders appear to be staying away for good cause.
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