Recent economic data suggests that global interest rates will remain high for longer than previously expected, causing higher opportunity costs for holding non-yielding gold. In addition, a stronger U.S. Dollar makes gold less affordable for foreign buyers.
Despite recent reports indicating that U.S. manufacturing contracted for the fourth consecutive month in February, there are signs that factory activity is stabilizing. Meanwhile, inflation in France, Spain, and Germany exceeded expectations, which is increasing the likelihood of rate hikes by the European Central Bank.
Overall, the recent three-day rally in gold prices may have been linked to a weaker U.S. Dollar, but it is unlikely to last as Treasury yields continue to rise. The absence of any returns for holding gold, as opposed to the attractive yields of Treasury bonds, is also pulling money from bullion. As a result, traders are expected to sell rallies, and further downward pressure on gold prices is anticipated.
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