- Gold prices continue to consolidate around 1300, just below key resistance which overcome would signal a short-term bullish outlook.
- Price is currently squeezing between the downtrend from the April 2018 high and the uptrend from the December 2016 and December 2017 lows.
- Retail traders have become increasingly net-long Gold over the past week, suggesting that downside is more likely in the near-term.
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Ongoing strength by the US Dollar coupled with a rebound in US Treasury yields has made for a choppy trading environment for Gold. Since our last update, the DXY Index pullback has stalled around 94.00, while the US Treasury 10-year yield has jumped back above 2.900%. Neither has proven particularly helpful in Gold's attempt to revitalize its bullish momentum.
Gold Price: Daily Timeframe (November 2016 to June 2018) (Chart 1)
Price is currently squeezing between the downtrend from the April 2018 high and the uptrend from the December 2016 and December 2017 lows. But for today's candle, price action has been relatively muted in recent days, with Gold holding below its daily 8-, 13-, and 21-EMA envelope.
Gold Price: Daily Timeframe (December 2017 to June 2018) (Chart 2)
Failure by Gold to reestablish itself through 1307.65 (mid-May swing high) suggests that the downtrend since the April (and 2018) high may not be over yet. Both MACD and Slow Stochastics remain in bearish territory and their respective rebounds appear to be fading.
Given this backdrop, Gold's near-term outlook is neutral, however, it would turn bullish again above 1307.65 or turn fully bearish below 1281.99, the May 2018 low (which would subsequently yield a break of the December 2016 and December 2017 uptrend).
US Treasury 10-year Yield: Daily Timeframe (August 2017 to June 2018) (Chart 3)
The next directional move by US Treasury yields may contain the key to the Gold price outlook evolving beyond neutral. Yields have quickly returned higher in recent days, which has made for a more difficult environment for bullion.
Accordingly, the odds of Gold price breaking down would increase should the US Treasury 10-year yield retake the uptrend in rates dating back to September 2017; a move above 2.950% would be especially concerning for Gold.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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