• Gold tumbles over 2% despite falling Treasury yields.
• US 10-year yields plunge 15 basis points to 4.963% amid haven demand.
• WTI approaches $100 as Middle East tensions fuel inflation concerns.

Gold (XAU/USD) collapses over 2% on Thursday as investors flee to the safety of US Treasuries amid falling yields and US equities. Concerns over technology companies' credit risks are mounting as investors seek evidence that massive AI investments will deliver returns. At the time of writing, XAU/USD trades at $4,047 after falling to a ten-week low of $4,034.

XAU/USD plunges as AI-related credit fears and geopolitical tensions drive investors toward US Treasuries

Market sentiment shifted to dismal. Tensions increased in the Middle East as the Houthis and Saudi Arabia exchange attacks. This, along with the US ordering the evacuation of its embassy in Saudi Arabia and newswires reporting that Washington and Jerusalem are getting ready for an attack on Iran, drives energy prices higher.

The US 10-year Treasury yield is down 15 basis points to 4.963%, its lowest level since September 23, as yields tumble amid a safe-haven bid.

Even though US yields are tumbling, it does not help bullion, which usually fares well in lower-yield environments. Nevertheless, high energy prices are pushing investors toward the safety of US Treasuries, seeking yield, and away from the non-yielding metal.

West Texas Intermediate (WTI), the US crude benchmark, has risen more than 1.80% to $99.50 per barrel. At the same time, the US Dollar Index (DXY), which measures the performance of the American currency against six others, holds at 101.62, barely down some 0.02%.

US Initial Jobless Claims for the week ending October 17 came in better than expected at 194K, below both estimates and the previous reading of 200K, and fell to a near 57-year low. The four-week average also dipped to 197.75K, pointing to a low-firing environment.

Last week, US inflation data was hotter than expected, but so far traders priced out a rate hike in October. Although most Federal Reserve (Fed) officials support another rate hike, they would like to evaluate the data before hiking again.

Expectations that the Federal Reserve will raise rates in October are off the table, with odds at 8%. But for December, there’s a near 80% chance, according to Prime Terminal.

Ahead, the US economic docket will feature the release of the University of Michigan Consumer Sentiment. Next week, traders' eyes are on the Fed’s meeting, followed by the Core Personal Consumption Expenditures (PCE) Price Index.

XAU/USD technical analysis: Gold sellers breach $4,100, the next target is $4,000

Gold price has finally breached the low of the $4,100-$4,200 range, with sellers stepping in and pushing the yellow metal firmly below $4,050. The Relative Strength Index (RSI) shows sellers gaining momentum, suggesting further downside ahead.

For a bearish continuation, the first support is the $4,000 milestone, above the July 29 cycle low of $3,996. Below lies the July 17 low at $3,959 and the year-to-date (YTD) low at $3,941.

For a bullish reversal, XAU/USD faces resistance at $4,100, paving the way towards $4,200. The next stop is the 100-day Simple Moving Average (SMA) at $4,222, the 50-day SMA at $4,309 and $4,500.

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.