After a strong rally over the prior two trading sessions, spot gold suffered a dramatic plunge on Tuesday (August 18). Analysts point to surging US Treasury yields hitting multi-decade highs, alongside escalating US-Iran tensions lifting energy prices and stoking inflation fears, which further eroded demand for non-yielding gold.

In a recent article by FXStreet analyst Christian Borjon Valencia, gold tumbled on Tuesday amid spiking US bond yields. Meanwhile, stalled US-Iran negotiations pushed energy prices higher, weighing on bullion.

Spot gold closed Tuesday down $82.38, or 1.9%, at $4,333.85 per ounce.

Peter Grant, Vice President and Senior Metals Strategist at Zaner Metals, stated that a steepening yield curve acted as resistance for gold, while firmer oil prices also contributed to the metal’s weakness on Tuesday.

Surge in US Treasury Yields

Long-term borrowing costs in the US, Japan and Germany have recently climbed in tandem to multi-decade highs, pressuring non-interest-bearing gold. At the same time, crude oil rose for the third consecutive trading session, putting renewed focus on risks of higher energy costs and a rebound in inflation.

During Tuesday’s session, the 30-year US Treasury yield briefly touched 5.337%, the highest level since 2007.

The sharp rise in US bond yields reflects investors’ reassessment of long-term inflation, fiscal deficits and the future interest rate path.

Since gold pays no interest, a rise in yields on interest-bearing assets such as US Treasuries increases the opportunity cost of holding gold and weighs on its price.

Higher Oil Prices

US President Donald Trump said Iran is unlikely to accept Washington’s terms to end hostilities, dimming prospects for de-escalation.

Iran, for its part, stated it would shift to a full offensive military posture and warned that the Strait of Hormuz would remain closed unless Washington accepts its conditions.

These remarks raised risks of crude supply disruptions and lifted oil prices. Higher energy costs may force central banks to keep interest rates elevated for longer to contain inflation pressure, which is negative for gold.

Focus on Fed Meeting Minutes

Valencia noted investors are awaiting the Federal Reserve’s policy meeting minutes due Wednesday for clues on the future rate path.

Markets will pay close attention to Fed officials’ views on inflation, the labour market and potential secondary inflation effects from energy prices.

Gold Technical Analysis

Valencia said gold broke back below the $4,400 per ounce threshold and crossed under the 100-day Simple Moving Average (SMA) at $4,384. With the Relative Strength Index (RSI) moving lower, bullish momentum appears to be fading, indicating sellers have entered the market.

Valencia projected that a break below $4,350 per ounce would trigger a test of $4,300, followed by a potential drop toward the July 6 high of $4,202, the 50-day moving average at $4,146 and the $4,100 mark.

(Spot Gold Daily Chart, Source: FXStreet)

Valencia added that to resume an upward trend, gold faces initial resistance at the $4,400 per ounce level, followed by the psychological barrier at $4,450 and the key milestone of $4,500 per ounce.