US Treasuries attract safe-haven demand despite lower yields as gold retreats

• Gold retreats more than 2% even as Treasury yields decline.
• A flight to safety sends US 10-year yields down 15 basis points to 4.963%.
• Inflation worries grow as Middle East tensions push WTI towards $100.

Trading at $4,047 at the time of writing, Gold (XAU/USD) is down over 2% on Thursday after touching a ten-week low of $4,034. Investors are turning to the safety of US Treasuries as yields and US equities decline. Credit risk concerns surrounding technology companies are intensifying, with investors looking for evidence that substantial AI spending will generate returns.

XAU/USD slides as AI credit concerns and geopolitical tensions steer investors into US Treasuries

Sentiment has turned decidedly negative as the exchange of attacks between the Houthis and Saudi Arabia heightens tensions in the Middle East. Energy prices are being driven higher by these developments, alongside a US order to evacuate its embassy in Saudi Arabia and newswire reports that Washington and Jerusalem are preparing for an attack on Iran.

Safe-haven buying has driven the US 10-year Treasury yield 15 basis points lower to 4.963%, a level last seen on 23 September.

Bullion is receiving no support from the sharp decline in US yields, despite usually benefiting from a lower-yield environment. Instead, elevated energy prices are prompting investors to seek safety and income in US Treasuries rather than hold the non-yielding metal.

A gain of more than 1.80% has taken West Texas Intermediate (WTI), the US crude benchmark, to $99.50 per barrel. Meanwhile, the US Dollar Index (DXY) stands at 101.62, marginally lower by some 0.02%. The index tracks the American currency against six other currencies.

At 194K, US Initial Jobless Claims for the week ending 17 October were lower than both forecasts and the previous reading of 200K, marking a near 57-year low. The four-week average eased as well, to 197.75K, indicating that dismissals remain low.

Despite last week’s stronger-than-expected US inflation figures, traders have so far priced out an October interest rate increase. Most Federal Reserve (Fed) officials favour a further rise, but want to assess the data before acting again.

With the probability at 8%, an October rate increase by the Federal Reserve is effectively off the table. For December, however, the likelihood is near 80%, according to Prime Terminal.

The University of Michigan Consumer Sentiment release is next on the US economic calendar. Attention next week will turn to the Fed’s meeting and, subsequently, the Core Personal Consumption Expenditures (PCE) Price Index.

XAU/USD technical analysis: Gold breaks below $4,100 as sellers target $4,000

Sellers have finally forced Gold below the lower boundary of the $4,100-$4,200 range, taking the metal decisively beneath $4,050. An increase in selling momentum is evident in the Relative Strength Index (RSI), pointing to further potential declines.

Should the decline continue, initial support stands at the $4,000 milestone, just above the 29 July cycle low of $3,996. Further down, the 17 July low of $3,959 precedes the year-to-date (YTD) trough at $3,941.

A bullish reversal would first encounter resistance at $4,100, with a break opening the route towards $4,200. Beyond that, the next levels are the 100-day Simple Moving Average (SMA) at $4,222, the 50-day SMA at $4,309 and $4,500.