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Gold Price Outlook Looks to Treasury Yields as US Dollar Gains, Where To From Here?


GOLD, XAU/USD, US DOLLAR, TREASURY YIELDS – Talking Points

  • Gold prices have returned to a closer relationship with Treasuries
  • Broader US Dollar movement has held weight over gold on this move
  • External factors are impacting XAU/USD.Will gold get to shine again?

Gold prices have weakened over the last few sessions as the US Dollar continued to get support from Treasury yields going higher. Last night, spot gold prices hit a fresh low that has not been seen since early August. In Asian trade, gold has had a small bounce as US yields eased a touch.

Today we saw September Chinese manufacturing PMI come in at 49.6 against expectations of 50.0 and non-manufacturing PMI printed at 53.2, above the forecasted 49.8.

The growth outlook for China may be impacted by the high energy commodity prices. While some commodities have seen some spillover effects from energy markets, precious metals have not thus far.

US 10-year Treasury yields appear to be driven by the possibility of the Fed beginning to taper their assets purchase program at the November meeting, rather than current concerns around the US debt ceiling.

The alignment of gold and 10-year Treasury yields appeared to break down to a degree between April and July. It has since resumed a tighter correlation and markets may focus on US bonds yields for indications of potential gold moves. The chart below has the US-10 year Treasury inverted to illustrate the relationship with the gold price.

GOLD AND THE INVERTED 10-YEAR TREASURY YIELD

GOLD TREASURY CHART

Chart created in TradingView

GOLD TECHNICAL ANALYSIS

The most recent move lower in gold’s price has seen it break through a descending trend line support. On this move, the price touched the lower bound of the 21-day Bollinger Band twice before consolidating back inside the band.

Since making a high in early September, the gold price has trended lower, setting up a number of retracement peaks along the way. Resistance might be found at these previous highs of 1787.24, 1808.74 and 1834.14. The high of 1834.14 was made in July and several attempts at going above this level were unsuccessful.

The 10-day simple moving average (SMA) and the 21-day SMA have a negative gradient and are both above the gold price, which could be bearish.

The descending trend line from the early September high, currently at 1770.50, could offer resistance should it be tested.

GOLD CHART

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter



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