Gold Struggles to Rise, Trade Balance Supports USD and Weighs on Sentiment
Gold prices are still struggling to strengthen after the latest batch of US data, as the market is refocused on the strengthening dollar and persistent US bond yields. Although geopolitical tensions maintain hedging demand, gold remains "heavy" because the opportunity cost of holding non-yielding assets increases when yields and the dollar rise.
The previous release of the labor market (NFP) data made the market more cautious about pricing in interest rate cuts. When easing expectations diminish, yields tend to remain high and the dollar finds support—a combination that typically limits gold's upside. Furthermore, better-than-expected trade balance data (a narrowing deficit) provides additional fundamental support for the dollar, although its impact on the market is usually less pronounced than inflation or employment data.
On the other hand, rising oil prices due to the Iran conflict adds another layer of pressure. High oil prices fuel concerns about energy inflation, making the market increasingly reluctant to increase bets on rapid interest rate cuts. The ultimate impact comes down to the two most important factors determining gold: the USD and yields.
Market Impact
Dollar (USD): likely to remain strong as long as the market views interest rates as "higher for longer" and US data doesn't weaken sharply.
Gold: finds haven support from geopolitics, but will struggle to rally if yields and the USD both strengthen.
Equities & risk assets: could be more volatile due to a combination of energy inflation and interest rate repricing.
What market participants need to watch
US Treasury yields (especially the 10-year) and the DXY: when they rise together, gold is usually held back.
Oil prices & conflicting headlines: determine the direction of energy inflation and risk sentiment.
Upcoming US inflation data (CPI/PCE): the biggest trigger for changing interest rate expectations, and often a key determinant of gold's direction.
Fed officials' comments: will they affirm "higher for longer" or open up room for easing(Cp)
Source: Newsmaker.id
