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Gold Price Forecast: Bullion to Track Rise in US Treasury Yields

Gold Price Forecast: Bullion to Track Rise in US Treasury Yields

David Song, Strategist

Gold Price Talking Points

The price of gold trades to a fresh weekly high ($1870) after showing a limited reaction to the Federal Reserve’s first interest rate decision for 2021, and the precious metal may continue to retrace the decline from the monthly high ($1959) as bullion largely tracks the rebound in longer-dated US Treasury yields.

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Gold Price Forecast: Bullion to Track Rise in US Treasury Yields

The price of gold appeared to be moving to the beat of its own drum after failing to exhibit the bullish price action from 2020, and it remains to be seen if the decline from the record high ($2075) will turn out to be an exhaustion in the broader trend or a shift in market behavior as the low interest rate environment along with the ballooning central bank balance sheets no longer provides a backstop for bullion.

Nevertheless, the price action following the FOMC meeting raises the scope for higher gold prices as the US 10-Year Treasury yield extends the rebound from the weekly low (0.998%), and the precious metal may stage a larger recovery ahead of the next Fed interest rate decision on March 17 as Chairman Jerome Powell and Co. appear to be in no rush to further utilize its non-standard tools.

In turn, key market themes may continue influence financial markets as the US Dollar still reflects an inverse relationship with investor confidence, but a further rise in longer-dated Treasury yields may keep the price of gold afloat as the FOMC retains the current course for monetary policy.

With that said, the price action following the Fed rate decision raises the scope for higher gold prices as it trades to a fresh weekly high ($1876), and the precious metal may continue to retrace the decline from the monthly high ($1959) as it largely tracks the rebound in longer-dated US Treasury yields.

Gold Price Daily Chart

Image of Gold price daily chart

Source: Trading View

  • Keep in mind, the price of gold pushed to fresh yearly highs throughout the first half 2020, with the bullish price action also taking shape in August as the precious metal tagged a new record high ($2075).
  • However, the bullish behavior failed to materialize in September as the price of gold traded below the 50-Day SMA ($1855) for the first time since June, with developments in the Relative Strength Index (RSI) negating the wedge/triangle formation established in August as the oscillator slipped to its lowest level since March.
  • The correction from the record high ($2075) indicates a potential shift in market behavior rather than an exhaustion in the bullish trend as the price of gold continues to trade at its lowest level since July, with the RSI highlighting a similar dynamic in late-2020 as it dipped into oversold territory for the first time since 2018.
  • In turn, the V-shape recoverythat materialized ahead of the July low ($1758) may continue to unravel as the price of gold still struggles to hold above the 50-Day SMA ($1855), with the RSI highlighting a similar dynamic as it no longer tracks the upward trend carried over from December.
  • Need a break/close above the Fibonacci overlap around $1846 (100% expansion) to $1857 (61.8% expansion) to bring the $1907 (78.6% expansion) region on the radar, with the next area of interest coming in around $1929 (23.6% retracement).
  • However, the string of failed attempts to break/close above the Fibonacci overlap around $1846 (100% expansion) to $1857 (61.8% expansion) may push the price of gold back towards the $1837 (38.2% retracement) region, with the next area of interest coming in around $1816 (61.8% expansion) to $1822 (50% expansion) followed by $1786 (38.2% expansion).
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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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

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