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Gold Prices May Turn Lower on US Fiscal Outlook, FOMC Minutes

Gold Prices May Turn Lower on US Fiscal Outlook, FOMC Minutes

Ilya Spivak,
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  • Gold prices extend upward as Treasury bond yields pull back further
  • US Senate ‘reconciliation’ decision may boost inflation expectations
  • FOMC minutes eyed for evidence of growing willingness to tighten
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Gold prices tracked higher as Treasury bond yields pulled back, bolstering the relative appeal of non-interest-bearing alternatives. The rate on the benchmark 10-year note has backtracked somewhat at the start of April having finished the prior month at the highest since January 2020.

Thus far, the close to 4 percent pullback appears well within the 2-6 percent range that has characterized notable corrections in the 10-year yield’s uptrend since early August. Incoming news-flow seems to support the sense that what is afoot is a retracement rather than a trend reversal.

A decision by the US Senate parliamentarian late Tuesday will reportedly allow the Democrats to advance multiple pieces of legislation through the so-called ‘reconciliation’ process this year. This allows for passage by a simple majority of one vote, which is exactly the narrow lead that Senate Democrats have.

This seems to mean that President Biden and company will be able to push through more of the expansionary fiscal program they’ve envisioned without facing a crippling Republican filibuster. That looks likely to stoke the recent swell in inflation expectations.

Markets have already shown a willingness to see through the Fed’s cautious rhetoric to speculate that a quickening pace of inflation will demand a pivot in recent weeks, pushing the US Dollar higher alongside yields. A view to a larger fiscal tailwind may revive this dynamic, weighing on gold prices.

Minutes from last month’s FOMC meeting may also help. The conclave concluded with a meaningful uplift of economic projections and a noticeable shift in baseline rate path expectations to a less-dovish setting. If notes on the underlying discussion flag any greater willingness to tighten, bullion may suffer.

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Gold prices are facing familiar support-turned-resistance in the 1747-66 zone. Pushing above this barrier on a daily closing basis may expose the psychologically significant $1800/oz figure, followed by the 1860-72 congestion area.

Immediate support is at 1719.40. Establishing a foothold back below looks likely to open the door for a descent back toward the upper bound of the 1634-80 congestion region. Pushing through that would imply the next leg of the 2021 downtrend is underway.

Gold price chart - daily

Gold price chart created using TradingView


--- Written by Ilya Spivak, Head Strategist, APAC for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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