Real yields vs. Gold | Convergence of the DecadeFor the first time since April 2010, the yield on a 10-year US Treasury note hit 3.9%, as expectations of higher interest rates to control sky-high inflation continued to make people less interested in buying government debt. In September, the Federal Reserve raised interest rates for the third time in a row, to a target range of 3% to 3.25% . Money markets now expect another 75 bps hike in November. Policymakers have also cut their expectations for economic growth in 2022 by a lot. In June, they thought the GDP would grow by 1.7% , but now they think it will only grow by 0.2%. In the meantime, the 2-year Treasury yield went above 4.3 %, which is the highest it has been since 2007. This made the difference between the 10-year yield and the 2-year yield even bigger and flipped the yield curve even more.
On Tuesday, the price of an ounce of gold went up toward $1,630, recovering slightly from a recent low as the relentless rise of the dollar slowed down. The yellow metal , on the other hand, stays close to its lowest levels in almost two years because people think that the US Federal Reserve will tighten money even more to stop inflation from rising. Monday, a lot of Fed officials said they were committed to fighting inflation, even if it meant some economic pain and more market volatility. Investors also looked at an OECD report in which the organization lowered its prediction for global economic growth in 2023 from 2.8% to 2.2% , citing aggressive monetary tightening in advanced economies and the length of the Russia-Ukraine war. Gold is often seen as a way to protect against inflation and economic instability. However, higher interest rates make it less appealing to hold non-yielding bullion , so investors continue to choose the dollar as a safe haven.
The dollar index fell below 114 on Tuesday.
It had hit a new 20-year high of 114.5 the day before, but investors took some profits and took a break after a sharp rally. The US dollar is still at a historical high against its major trading partners because people think that the Federal Reserve will tighten monetary policy even more to stop rising inflation. Monday, a lot of Fed officials said they were committed to fighting inflation, even if it meant some economic pain and more market volatility. The dollar continued to be supported by investors' rush to it as a safe haven in the face of a very uncertain global economic outlook and growing fears of a recession. When compared to the euro and the yen, the dollar was close to multi-decade highs, but when compared to the pound, it was close to an all-time low because people didn't trust Britain's budget plan.
