FX.co ★ XAU/USD, GOLD

XAU/USD Carsten Fritsch of Commerzbank observes that following good producer pricing data, the price of gold has drastically declined as markets price in fresh US rate hikes. The opportunity cost of storing gold is rising due to rising US Treasury yields, and also India's sharp increase in import taxes is expected to reduce physical demand. It might be difficult for the future Fed chair to defend the rate reductions. Today, the price of gold dropped by as much as 2% to USD 4,560 per troy ounce. It was still trading at about USD 4,700 yesterday before the price decline started. Expectations for interest rates are posing some challenges. The market now expects the US Federal Reserve to raise the interest rates in response to the much higher-than-expected US producer pricing data for April. By the end of the year, a 15-basis-point increase in US key interest rates is priced in, and by March 2027, a complete 25-basis-point rate hike. Consequently, the yield on 10-year US Treasuries increased by almost 20 basis points from the previous week to a one-year high of 4.54%. The opportunity cost of storing gold increases as a result. This week, the price of gold encountered additional challenges from a different source. The tariff on gold imports in India was increased from 6% to 15%, which is probably going to somewhat reduce the country's demand for gold. Due to a tax hike, India's gold imports already dropped to a 30-year low in April and may now drop even more.