Gold Regains $1,700 as U.S. Bond Yields Plunge, Dollar Dips 4th Day

By Barani Krishnan

Investing.com -- Gold regained $1,700 territory on Monday after a plunge in U.S. bond yields and the dollar’s dip for a fourth day in a row brought back more buyers into the yellow metal.

Gold’s benchmark futures contract on New York’s Comex, December, settled the day’s trade up $30, or 1.8%, at $1,702 per ounce. Prior to this, gold last occupied $1,700 on Sept. 14.

The spot price of bullion, which is more closely followed than futures by some traders, was up $38.59, or 2.3%, at $1,699.57 by 16:57 ET (20:57 GMT). Earlier, the spot reached a session high of $1,701.51.

Gold jumped as the Dollar Index, which pits the U.S. currency against the euro and four other rivals, hit a more than a week low of 111.40, losing some 2.2% over a four-day span.

The yield on the U.S. 10-year Treasury note, meanwhile, tumbled to a Sept. 22 low of 3.587%.

The dollar and bond yields plummeted on hopes that signs of slowing economic growth will force the Federal Reserve to cool the pace of rate hikes.

A duo of weaker-than-expected economic reports showing manufacturing activity unexpectedly slipped into contraction, and construction activity was worse than feared, stoked optimism somewhat that the Federal Reserve may be forced to consider a pivot to avoid pushing the economy into a deep recession.

ISM manufacturing data for September showed a drop to 50.9 from 52.8, well below economists’ forecasts for a drop to 52.2. A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for about 12% of the U.S. economy.

Sevens Report Research said in a Monday research note that “the fundamental backdrop is getting less bearish” for gold “as Treasury yields and the dollar may be approaching a peak.”

However, “if we do not see a peak in yields and the buck,” investors should expect the precious metal to tumble to new lows, it added.

Downside risks remain for gold as “major central banks are expected to continue raising interest rates aggressively to combat surging inflation,” ICICI Bank said in a separate outlook.

The potential for the Fed to keep doing jumbo-sized rate hikes to bring U.S. inflation has been the main drag on gold and other markets.

Investors are assessing the likelihood of another 75 basis-point rate hike at the Fed’s November meeting. The Fed’s policy rate is now in the 3.00%-3.25% range, a full 3 percentage points higher than where it was at the start of 2022, and officials have penciled in another increase in December after the forthcoming one in November.

Hawkish Fed talk typically pushes up the dollar, weighing on commodities, including gold, that are priced in the currency.

A slew of Fed policymakers are to speak this week to push the central bank’s agenda. They include New York Fed President John Williams, Atlanta Fed President Raphael Bostic, Chicago Fed President Charles Evans, San Francisco Fed President Mary Daly, and Cleveland Fed President Loretta Mester.