Gold price performance
Gold prices (GLD) saw their first weekly gain last week after six weeks of continuous losses. The losses in the US dollar were the major reason for gold’s gains. Last week, the US Dollar Index (UUP) slipped 0.9%, which was its worst weekly performance since February 2018.
Sell-off yesterday as Treasury yields rose
While this week started off on a positive note for the metal as it rose to the highest level in two weeks on Monday, yesterday it fell 0.8%. US Treasuries (TLT) rose as the US (SPY) (VTI) and Mexico agreed to overhaul NAFTA, which led to pressure on gold. As interest rates rise, gold loses its luster, as it doesn’t yield anything in terms of income, thus its holding cost rises. US Treasuries have been the major beneficiaries of safe-haven bids as trade tensions have risen. Thus, with somewhat easing tensions, investors sold off Treasuries. It is because of these safe-haven bids for US Treasuries that investors had bid up the US dollar (UUP) too.
Consumer Confidence Index hits 18-year high
While US Treasury yields climbed yesterday, the US dollar weakened, which supported gold to an extent. Apart from the rise in yields, the consumer confidence index might also have to do with the decline in gold prices yesterday. The Consumer Confidence Index came in at 133.4 in August, higher than July’s revised 127.9, and beating economists’ expectations of 126.6. The index also touched its highest level in 18 years. Healthy levels of consumer confidence suggest continued strong consumer spending, which forms two-thirds of the US economy.
While gold has been under pressure since April 2018, most analysts feel that gold should gain significantly going forward. We’ll discuss analysts’ perspectives in more detail in the next two parts of this series.