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Gold Prices Sink as Powell’s Pivot Lifts Treasury Yields. Will XAU/USD Go Lower?

Gold Prices Sink as Powell’s Pivot Lifts Treasury Yields. Will XAU/USD Go Lower?

Daniel McCarthy, Strategist


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  • Gold broke down as the Fed looks set to tackle high inflation
  • USD whipped around but Treasury yields going higher dominated gold
  • Real yields lifted by lower pricing of inflation. Where to for XAU/USD?
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Gold prices fell in the aftermath of Federal Reserve Chairman Jerome Powell testimony before the Senate Banking Committee. In his remarks, he dropped the reference to ‘transitory’ inflationary.

Mr Powell said that the economy is strong and inflationary pressures are high. He looked at the next Fed meeting for a discussion to wrap up the asset purchasing program a few months earlier than previously anticipated.

The US Dollar index (DXY) initially spiked higher on the comments and gold fell at the same time. However, as DXY pulled back to near where it was before the testimony, gold remained weaker.

His remarks on speeding up the pace of tapering the asset purchase program saw short-end Treasury yields go higher. 2-year yields leapt around 12 basis points (bp).

Market priced inflation calculated through Treasury Inflation Protected Securities (TIPS) nudged lower as well. Inflation pricing has moved significantly lower since a peak in the middle of last month across the curve.

All other things being equal, this has the effect of lifting the ‘real yield’ of Treasuries. That is the rate of return from a security less the erosion of inflation. This makes them a more attractive investment alternative to the yellow metal.

With this in mind, it appears that yields are a key driver for the outlook on gold prices at the moment.

In other news, according to reports from Bloomberg, the Monetary Authority of Singapore (MAS) purchased 26.3 tonnes of the precious metal over May and June earlier this year.

From the beginning of May to the start of June, XAU/USD moved from 1770 to a high of 1916. By the end of June, it was back to near 1770.

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Gold has moved below last week’s low and may have some bearish momentum as it has broken below all short, medium and long-term simple moving averages (SMA).

The 10, 21, 55, 100, 200 and 260-day SMAs are possible resistance levels. Further resistance might at the pivot points and previous high of 1778.69, 18.13.94, 1815.60 and 1834.14.

Support could be at the previous lows of 1758.93, 1750.25 and 1721.71.


Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.