Gold retreated on Tuesday as rising long-term government bond yields and stalled US-Iran peace talks weighed on investor sentiment.
Spot gold fell 1.3% to US$4,356 ($6,139) an ounce, erasing gains from the previous session. Gold futures in New York also declined but remained above US$4,430 per ounce.
Long-term government bond yields have risen sharply across global markets, renewing concerns over inflation and interest rates.
In the US, 10-year Treasury yields hovered near their highest levels since early 2025, while 30-year yields reached their highest since 2007.
Higher yields can typically weigh on gold by increasing the opportunity cost of holding the non-yielding metal.
“The higher yields can weigh on gold if driven by monetary tightening, making the non-yielding metal less attractive to investors,” Ole Hansen, head of commodity strategy at Saxo Bank, says.
However, Hansen says the impact could be different if rising long-term yields reflect concerns over government finances rather than economic strength.
If so, “the historically negative relationship between gold and Treasury yields may continue to weaken”, creating “an unusual but potentially supportive environment for gold”, he adds.
Middle East uncertainty
Meanwhile, stalled US-Iran peace negotiations are keeping inflation risks in focus, despite recent US economic data reducing expectations of an immediate Federal Reserve rate hike.
Expectations of tighter monetary policy have weighed heavily on bullion since March, with gold falling more than 20% through July before beginning to recover this month.
Hansen believes fading expectations of a Fed rate hike, alongside a weaker US dollar, have removed two major headwinds for gold.
However, uncertainty surrounding the Middle East remains. A renewed escalation could push energy prices higher and revive inflation concerns, potentially putting pressure on the Fed to tighten monetary policy.
Sentiment shifts bullish
Despite the near-term volatility, analysts remain positive on gold’s longer-term outlook as investor demand improves and central bank buying recovers.
A Bank of America fund manager survey released on Tuesday showed the share of investors who consider gold undervalued had reached its highest level since March 2023.
“Current investor buying is more consistent with a price closer to $4,000/oz than $5,000/oz, which is associated with investment demand growth of 21% year over year,” Bank of America analysts said in a note.
“Hence, investor purchases likely need to accelerate for gold to push towards $5,000/oz.”
Analysts surveyed by Reuters also pointed to signs that gold is regaining some of its safe-haven appeal following the sharp sell-off triggered by the US-Iran war.
“It feels as though the handbrake has finally been released from gold,” independent analyst Ross Norman told Reuters.
HSBC chief precious metals analyst James Steel says the outlook will depend partly on what happens next in the Middle East.
“If oil doesn’t steal the show again, if the situation in the Middle East does not erupt and oil prices spike, then it looks as if the path of least resistance for gold is higher,” Steel says.
Write to Jackson Chen at Mining.com.au
Image: Barrick
