Rising yields, firm dollar hit gold's appeal; experts see bearish trend

Gold prices took a more than 2% hit on Thursday as crude oil's climb back above $100 a barrel sparked fresh inflation fears, leading investors to largely discount the possibility of US interest rate cuts this year.

Meanwhile, silver on COMEX also plunged nearly 7%, pressured by rising Treasury yields and a firmer dollar. 

Both gold and silver prices had risen sharply on Wednesday as crude oil slipped due to hopes of a peace deal between the US and Iran.

Strong dollar and yields weigh on prices

Demand for the dollar remains strong, driven by macroeconomic conditions and persistently high real yields.

A stronger dollar makes commodities priced in the greenback more expensive for overseas buyers. 

At the time of writing, the June gold contract on COMEX was at $4,472.80 per ounce, down 2.5%, while the May silver contract was at $67.850 an ounce, down 6.6% from the previous close. 

Meanwhile, crude oil prices climbed approximately 3% on Thursday, recovering from losses incurred during the preceding session. 

This rebound in oil prices was driven by worries that the prolonged ​conflict in the Middle East could increasingly impede the flow of energy supplies.

The appeal of non-yielding assets like gold is diminished by rising interest rates, even though gold is often viewed as a long-term hedge against inflation.

This is because higher Treasury yields, such as the benchmark US 10-year Treasury yields recently hitting near eight-month highs, increase the opportunity cost of holding the metal.

Fed outlook and safe-haven direction

According to the CME Group's FedWatch Tool, markets currently indicate a nearly 38% probability of a US interest rate hike by December of this year. 

Conversely, a substantial 93% of the market is pricing in the Federal Reserve holding rates steady at its April policy meeting. 

A rate cut is seen as highly unlikely, with only a 3% chance, and that too, only in December.

This outlook contrasts sharply with expectations before the recent conflict, when markets were anticipating at least two rate cuts in 2026.

A rise in US bond yields and real interest rates, stemming from revised expectations regarding the Fed's interest rates, triggered a sharp decline in gold.

Last week, the price of gold fell by over 10%, which was its largest weekly drop in 43 years.

“Nevertheless, the recent price slump is likely to be just as much of an overreaction as the massive rise at the start of the year.” Carsten Fritsch, commodity analyst at Commerzbank AG, said. 

“In a sense, the pendulum has swung from one extreme to the other for gold.”

Silver is similarly affected, though its more extensive use in industry makes it more susceptible to economic worries stemming from higher oil costs.

Gold and silver prices had rallied earlier this week, after US President Donald Trump had temporarily halted his threatened attack on Iran's energy sector for five days. This resulted in a significant reduction in their trading losses, with silver even fully recovering losses.

“Gold is currently not behaving like a classic safe haven. It is difficult to say how long this anomaly will persist,” Fritsch said. 

“Much is likely to depend on the behaviour of ETF investors, who have continued to sell gold on a considerable scale in recent days, thereby acting as a drag on prices,” he added. 

Short term outlook

Gold is expected to consolidate and trade sideways, displaying a bearish bias, as its price remains stable below the immediate resistance level of $4,480 per ounce, according to Sunil Kumar Dixit, chief technical strategist and founder of SK Charting.

“A strong breakout above this zone may lead to further upside recovery towards $4,520-$4,550, while bullish trend requires strong breakout above $4,640,” Dixit said. 

A corrective pullback is evident in the market, following a rally from the recent low of $4,100, which managed to reach the 38.2% Fibonacci retracement level at $4,602. 

However, this rebound is likely only a temporary correction within the larger downward trend that began from the record high. Consequently, key resistance zones are anticipated to draw renewed selling pressure, Dixit added.

“The main bias seems to be 'Sell the rallies' in the absence of a clear and strong structural breakout above $4,500-$4,550.”