Gold prices experienced a decline from their record-high levels on Wednesday as treasury yields and the US dollar rose.
This downward pressure was attributed to a slight increase in Treasury yields, which occurred in the wake of Federal Reserve Chair Jerome Powell’s remarks indicating that there was no immediate plan to reduce interest rates.
Powell’s comments suggested that the Fed was adopting a cautious approach to monetary policy and that any potential interest rate cuts were not on the horizon soon.
This stance contributed to the rise in Treasury yields, which in turn exerted downward pressure on gold prices.
“Gold price (XAU/USD) maintains its offered tone through the first half of the European session on Wednesday, though it lacks follow-through selling as traders opt to wait for the release of the US consumer inflation figures,” Haresh Menghani, editor at FXstreet, said in a report.
At the time of writing, the April gold contract on COMEX was at $2,906.79 per ounce, down 0.9% from the previous close.
Meanwhile, Powell’s hawkish comments on Tuesday have bolstered the US Dollar (USD).
A stronger dollar makes commodities priced in the greenback more expensive, thereby limiting demand.
Menghani added:
This, along with a generally positive risk tone, undermines the commodity for the second straight day.
Gold hits record highs
Gold prices reached a series of new all-time highs this week, driven by a surge in risk aversion among investors.
This heightened risk aversion was primarily triggered by the Trump administration’s decision to escalate trade tensions with several countries.
President Trump imposed a 25% import tariff on steel and aluminum, a move that was met with widespread concern about the potential for a global trade war.
In addition to the steel and aluminum tariffs, Trump also indicated his intention to impose reciprocal tariffs on goods from some of America’s largest trading partners.
“The price increase is increasingly reminiscent of a rational bubble, where gold is being bought in anticipation of a further price increase,” Carsten Fritsch, commodity analyst at Commerzbank AG, said.
Geopolitical risks and Trump’s new levies on commodity imports and promised reciprocal tariffs should continue to bolster the price of safe-haven gold, according to experts.
Gold flows from London to New York in a big way
Safe-haven demand for gold has remained steady over the past few trading days.
COMEX gold stocks increased by 28 tons on Monday, and have risen by over 100 tons so far in February, following a 290 ton increase in January.
Additionally, the world’s largest gold ETF saw inflows of 7 tons in the last two trading days.
The London Bullion Market Association reported on Friday that gold holdings in London vaults decreased by 1.5%, or 150 tons, in January, reaching their lowest point since 2020, according to Commerzbank.
The LBMA attributed this to flows towards New York.
“The day before, the deputy governor of the Bank of England, Ramsden, had reported a 2% decline in gold holdings at the BoE since the end of last year and also attributed this to arbitrage between the gold markets in the US and London,” Fritsch said.
“In this context, Ramsden spoke of somewhat longer waiting times for delivery, but of an orderly process.”
Gold in overbought territory
Analysts said that gold prices had been in overbought territory for the last few trading sessions.
“The daily MACD (moving average convergence divergence) has indicated that gold has been in ‘overbought’ territory for the last ten days or so, meaning that a consolidation, or pullback, was overdue,” David Morrison, senior market analyst at Trade Nation, said.
“The current decline seems to mirror gold’s steady and measured ascent since the beginning of this year. Of course, it’s worth noting that this is only ‘Day 2’ of the sell-off and things can change quickly,” Morrison added.
The daily chart’s overnight relative strength index (RSI) is a technical indicator that’s driving some profit-taking around the gold price, according to FXstreet.
“That said, any further slide might still be seen as a buying opportunity and remain limited near the $2,855-2,852 region,” Menghani said.
Gold could fall towards the $2,800 mark if support near the $2,834 area is broken.
Morrison said:
More importantly, the length and depth of this pullback has the potential to provide strong clues concerning where gold goes next. It could signal that the high for gold is already in. Alternatively, it could suggest that gold has more upside to come, and fresh record highs as well.
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