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Gold Price Rebound Susceptible to Rising US Treasury Yields

Gold Price Rebound Susceptible to Rising US Treasury Yields

David Song, Strategist

Gold Price Talking Points

The price of gold seems to be carving a bullish inside day candle as it attempts to retrace the decline from the start of the week, but current market conditions may continue to drag on the precious metal as speculation for a looming shift in Federal Reserve policy lifts US Treasury yields.

Gold Price Rebound Susceptible to Rising US Treasury Yields

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The price of gold bounces back from a fresh monthly low ($1728) as the 10-Year Treasury yield pulls back from a fresh monthly high (1.56%), and bullion may consolidate over the remainder of the week as an inside day candle takes shape going into the end of September.

Image of DailyFX Economic Calendar for US

Looking ahead, it remains to be seen if the US data prints on tap for later this week will influence the price of gold amid the limited reaction to the better-than-expected Durable Goods Orders report, but a batch of mixed developments may prop up the price of gold as it encourages the Federal Open Market Committee (FOMC) to retain the current policy at the next interest rate decision on November 3.

At the same time, signs of sticky inflation along with evidence of a robust recovery may dampen the appeal of bullion as the update to the Summary of Economic Projections (SEP) shows a forward shift in the interest rate dot-plot, and growing speculation for an imminent shift in Fed policy may fuel a further advance in US yields as the central bank appears to be on track to taper its purchases of Treasury securities and mortgage backed securities (MBS) over the coming months.

With that said, the price of gold may consolidate over the remainder of the week as it holds within the previous day’s range, but the rebound from the August low ($1682) may turn out to be a correction in the broader trend rather than a change in market behavior as longer-dated Treasury yields retrace the decline from earlier this year.

Gold Price Daily Chart

Image of Gold price daily chart

Source: Trading View

  • Keep in mind, the negative slope in the 200-Day SMA ($1802) indicates that the broader trend for bullion remains tilted to the downside, with a ‘death cross’ formation taking shape in August as the Relative Strength Index (RSI) pushed into oversold territory.
  • However, lack of momentum to test the March low ($1677) generated a textbook buy signal in the RSI as the oscillator climbed back above 30, with rebound from the August low ($1682) pushing the price of gold briefly above the 200-Day SMA ($1802) earlier this month.
  • Nevertheless, the price of gold appears to have reversed course the failed attempt to clear the July high ($1834), with lack of momentum to hold above the Fibonacci overlap around $1743 (23.6% expansion) to $1763 (50% retracement) bringing the $1690 (61.8% retracement) to $1695 (61.8% expansion) region on the radar.
  • A break of the below the August low ($1682) opens up the March low ($1677), with the next area of interest coming in around $1670 (50% expansion).
  • Need a move back above the Fibonacci overlap around $1743 (23.6% expansion) to $1763 (50% retracement) to indicate a larger rebound in the price of gold, with the next topside hurdle coming in around $1786 (38.2% expansion).

--- 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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