Fundamental Analysis

Gold Nears One-Month High Amid Declining Treasury Yields

  • The dollar index reached its lowest point in over a year.
  • US producer prices experienced a minimal rise in June.
  • Initial claims for state unemployment benefits in the US decreased by 12,000 to 237,000.

Gold prices neared one-month highs on Thursday as the US dollar and Treasury yields declined. The declines reflected expectations that the US Federal Reserve would soon conclude its rate-hike cycle. The dollar index reached its lowest point in over a year, making gold more affordable for international buyers.

Additionally, US Treasury yields fell, reducing the cost of holding non-yielding bullion. Phillip Streible, a chief market strategist at Blue Line Futures in Chicago, stated that a strong gold market rally occurred after yesterday’s data. Streible added that gold had a good chance of reaching the $2,000 mark with the support of another catalyst, despite encountering various resistance points.

US Producer Price Index (Source: Bureau of Labor Statistics)

US Producer Price Index (Source: Bureau of Labor Statistics)

Data released on Thursday indicated that US producer prices experienced a minimal rise in June, providing further evidence of the economy’s transition into a disinflationary phase. According to a Labor Department report, the producer price index (PPI) increased by 0.1% last month. 

Moreover, the data for May was revised, indicating that the PPI had declined by 0.4% instead of the previously reported 0.3%. Over the 12 months leading up to June, the PPI experienced a modest gain of 0.1%.

This was the smallest year-on-year increase since August 2020, following a 0.9% rise in May. Economists surveyed by Reuters had predicted a 0.2% rebound in the PPI for the month and a 0.4% increase on a year-on-year basis. 

This followed a recent report showing modest consumer price increases in June, marking the lowest annual rise in over two years.

Commerzbank noted that the market had adjusted its expectations for a second rate hike, leading to a recovery in the gold price. Interest rate futures indicated that the market largely anticipated another rate hike by the Federal Open Market Committee (FOMC) later this month, but expectations for further increases had diminished. Higher rates lift the opportunity cost of owning non-yielding gold.

Even as inflation slows down, the tightness in the labor market persists. The Labor Department released a separate report indicating that initial claims for state unemployment benefits decreased by 12,000 to 237,000 for the week ending on July 8. Economists had predicted 250,000 claims for the same week.