Gold (XAU/USD) holds firm on Wednesday after falling 1.85% the previous day, as a pause in the global bond sell-off helps reduce upward pressure on Treasury yields and offers some support to the non-yielding metal.
At the time of writing, XAU/USD is trading around $4,492 after hitting an intraday low near $4,453, its weakest level since March 30
The benchmark US 10-year Treasury yield eases to around 4.623% after climbing to a 16-month high of 4.687% on Tuesday, while the 30-year yield slips to 5.154% after touching 5.200%, its highest level since July 2007. Despite the modest pullback in Treasury yields, they remain elevated overall as rising Oil-driven inflation risks tied to the ongoing US-Iran war continue to fuel expectations that major central banks, including the Federal Reserve (Fed), may need to keep monetary policy tighter for longer or even raise interest rates. A higher interest rate environment typically weighs on non-yielding assets such as Gold, as rising Treasury yields increase the opportunity cost of holding Bullion, and this continues to act as a key headwind for the precious metal.
Markets are increasingly pricing in the likelihood of a Fed rate hike by year-end, with the CME FedWatch Tool indicating nearly a 40% probability of a 25-basis-point (bps) increase by December, up from around 29% a week ago. Traders now look ahead to the release of the Fed’s April Meeting Minutes later on Wednesday for further clues on the future interest rate path and how policymakers are assessing the inflationary impact of rising energy prices. Philadelphia Fed President Anna Paulson said on Tuesday that policy is “mildly restrictive” and that such restrictiveness is helping to keep inflation pressures in check while the labor market remains stable.