On Tuesday, the price of gold dropped by about 0.1%, landing at $1,826 per ounce. This is quite a decrease compared to its recent peak of over $2,070 back in May 2023. The reason for this decline is the increasing strength of US Treasury yields and the dollar. Experts believe that high-interest rates are likely to stick around for a while, which is affecting the value of gold negatively.
The Gold Price Surge in 2023
On Tuesday, the price of gold continued to decrease, reaching $1,826 per ounce. This is the lowest it has been since February 2023.
To put this in perspective, back in May, gold experienced a significant surge, almost reaching its all-time high of $2,072.49 per ounce. This surge was a result of a crisis in the US banking industry, which made investors seek safety in assets like gold to protect their money.
The banking crisis began when Silicon Valley Bank (SVB) collapsed in March. This event led to a rapid outflow of $42 billion in deposits within just 10 hours, making it the fastest bank failure in over a decade. The panic caused by SVB’s collapse triggered similar runs on other banks like Signature and First Republic, which were subsequently taken over by regulators. This series of events marked the most severe banking crisis since the 2008 financial crash.
Gold Faces Challenges Due to Increasing Bond Yields and a Strengthening US Dollar
To stop the chaos from spreading, central banks worldwide, including the Federal Reserve, European Central Bank (ECB), Bank of Canada, and others, stepped in to provide significant financial support.
As the crisis gradually got resolved, investors began to feel more confident about taking risks again, which had a negative impact on gold prices. However, one of the key reasons that wiped out the gains gold had made earlier was the strengthening US dollar and the increase in Treasury bond yields.
Both the US dollar and Treasury yields have been on the rise lately because there’s a growing belief that the Federal Reserve will continue to increase interest rates to bring inflation back to its desired target of 2%. Comments from the Fed that suggested a more aggressive approach boosted the US dollar index to its highest level since November 2022, and the 10-year Treasury yield surged to its highest point in 16 years.
Higher yields on government bonds and lower bond prices caught the attention of foreign investors who need to buy US dollars before they can invest in these bonds. This creates a cycle where rates keep rising, and the dollar gets stronger.
Additionally, the Federal Reserve’s hawkish stance had a negative impact on stock prices, particularly hitting the tech sector hard in September. This came after several months of significant gains driven by artificial intelligence technologies.
