- Investors are offloading the precious metal due to rising bond yields.
- The factors that have driven the dollar higher since March have returned.
The US dollar posted its best weekly gain in the last two months on the realisation that the conflict in the Middle East is set to continue. The US-China summit failed to yield any breakthroughs on unblocking the Strait of Hormuz, and Donald Trump’s threats are not working. The adversaries are at an impasse, oil prices are rising, dragging up the DXY, the dollar index against a basket of the most popular currencies.
There is a persistent sense of déjà vu in the markets. In March, the dollar strengthened as a safe haven and the currency of a net energy exporter. The US did indeed increase oil and petroleum product exports to a new record of 14.2 million barrels per day. In April, the USD index fell on rumours of an imminent end to the conflict in the Middle East. However, the reality turned out to be different. The opposing sides remain far apart, so the Strait of Hormuz blockade will continue.
Macquarie Group intends to remain bullish on the US dollar until the standoff between the US and Iran ends. Monex, citing a series of strong data on the US economy, argues that even after the conflict ends, the greenback will remain stronger than before. JP Morgan is recommending selling EURUSD for the first time in a year.
Conversely, Morgan Stanley believes that the euro will rise to $1.23 by the end of the third quarter due to lower hedging costs for European investors putting money into US assets.
Gold has plummeted to its lowest level since late March amid rising global bond market yields. The yield on 10-year US Treasury bonds has reached its highest level since February 2025, while the yield on Japanese 30-year bonds has risen to its highest level since 1999. Investors are betting on tighter monetary policy worldwide. Yardeni Research is urging the Fed to face the facts and begin a cycle of monetary tightening. Otherwise, the Fed risks losing control of the Treasury market.
Meanwhile, Goldman Sachs estimates that central bank demand for gold bars will rise from 50 tonnes in the year to March to 60 tonnes for the remainder of the year. This should support gold. However, in the short term, the price will remain under pressure due to high liquidity demand from other markets.
