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The rally of the U.S. dollar and higher yields on U.S. bonds have proven to be too strong for the gold market. Precious metal prices may continue to decline as the U.S. Central Bank is expected to maintain its current monetary policy in the near future.
The sell-off in gold occurred against the backdrop of the 10-year U.S. bond yields reaching their highest level since October 2007, exceeding 4.6%. Consequently, the U.S. dollar index rose above 107 points, reaching its highest level since late November.
Furthermore, the dollar was supported yesterday by positive news in the U.S. manufacturing sector. The Manufacturing Purchasing Managers' Index (PMI) exceeded expectations and previous data.
This week, we need to prepare for important news releases, such as changes in non-farm payrolls, which will be published on Friday. However, before that, there will also be increased volatility due to the release of economic news in the U.S. on Wednesday and Thursday.
Gold will likely drop to the $1800 per ounce level, as many analysts suggest. However, it is important to note that only some bearish positions on gold may be established around $1800.
It will be necessary to closely monitor the sentiments in financial markets, as stock indices have also been falling while long-term yields are rising. This suggests that further declines in precious metal prices are possible.
Nevertheless, over the weekend, the U.S. Congress reached a 45-day agreement that barely averted a federal government shutdown that was supposed to start on Monday. In response to the agreement, major stock indices rose and began the first trading session of October with positive momentum. However, it is uncertain whether this market optimism will be a long-term phenomenon. Interest rates and the Federal Reserve's aggressive stance will remain the main factors influencing market developments in the coming weeks.
Also, note that the macroeconomic situation may pressure stocks, thereby supporting precious metals. Therefore, the decline in gold prices can be seen as an advantageous position for new purchases.
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