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Gold Price Under Pressure as US Government Bond Yields Rise

Gold Price Under Pressure as US Government Bond Yields Rise

2018-02-22 11:30:00
Martin Essex, MSTA, Analyst
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Gold price talking points:

- With US 10-year Treasury note yields now close to 3%, the attraction of gold is waning.

- Moreover, for now at least, the precious metal seems to have lost its safe haven status.

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Gold price suffers as US yields rise

Higher US Treasury bond and note yields after a set of Fed minutes that were interpreted as hawkish have further lessened the attraction of gold, which yields nothing at all. The minutes of the January meeting of the US rate-setting Federal Open Market Committee said “a majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate.”

That gave the US Dollar a boost and lifted the yield on the benchmark 10-year Treasury note close to the psychologically-important 3% level, although it has eased back in European trading since then.

US 10-Year Treasury Note Yield, Five-Minute Timeframe (February 21-22, 2018)

Gold Price Under Pressure as US Government Bond Yields Rise

Gold also seems to be losing its safe haven status as a place to park money when market risk is high. As the chart below shows, the gold price is easing and a bearish head and shoulders top could be forming.

Gold Price Chart, Daily Timeframe (July 22, 2017 to February 22, 2018)

Gold price chart

Chart by IG

IG Client Sentiment data are sending out a bearish signal for the gold price too. The figures show 66.1% of traders are net-long, with the ratio of traders long to short at 1.95 to 1. The number of traders net-long is 3.5% higher than yesterday and 5.9% higher from last week, while the number of traders net-short is 2.9% lower than yesterday and 10.9% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests gold prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger gold-bearish contrarian trading bias.

Gold Price Under Pressure as US Government Bond Yields Rise

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

Don’t forget, you can learn more about gold and other markets by listening to our regular Trading Webinars

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

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