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Gold Price Chart: Topside Breakout Mirrors Collapsing Yields

Gold Price Chart: Topside Breakout Mirrors Collapsing Yields

Rich Dvorak, Analyst

GOLD PRICE – TALKING POINTS

  • XAUUSD caught bid and broke above bearish downtrend resistance
  • Spot gold looks to extend its recent advance as investor sentiment worsens
  • Gold prices could climb higher along with US Treasuries, but CNY weakness could pose a headwind

Gold soared over 1 percent during Monday’s trading session as markets reacted to the most recent US China Trade War headlines. The escalation in trade tension between the US and china has sent investors fleeing risk assets like stocks and piling into ‘safe-havens’ like gold and bonds.

XAUUSD PRICE CHART: DAILY TIME FRAME (AUGUST 14, 2018 TO MAY 13, 2019)

XAUUSD Spot Gold Price Chart

With today’s advance, XAUUSD appears to have smashed through the bearish downtrend formed by the series of lower highs since mid-February. With this technical resistance line no longer serving as an upside headwind, spot gold has potential to keep climbing – particularly if investor sentiment continues to worsen and yields fall further.

TNX US 10 YEAR TREASURY RATE VERSUS SPOT GOLD PRICE CHART: DAILY TIME FRAME (OCTOBER 17, 2018 TO MAY 13, 2019)

Gold Price Chart and US 10 Year Treasury Yield

Rhetoric surrounding the recent breakdown in Sino-American trade talks largely sparked the move into Treasuries, pushing government bond prices up and yields down. Consequently, the US 10-Year Treasury yield plummeted from a high of 2.58 percent on May 3 down to a low of 2.39 percent today as traders flock to the safety of sovereign debt.

As the chart above illustrates, spot gold (shown on inverse scale) tends to mirror US Treasuries seeing that the yield-less commodity typically benefits from lower interest rates. But, it appears that XAUUSD bulls have cautiously overlooked the recent stretch lower in yield which might suggest that gold’s safe-haven status could be losing credence.

CHINESE YUAN VERSUS SPOT GOLD PRICE CHART: WEEKLY TIME FRAME (FEBRUARY 29, 2016 TO MAY 13, 2019)

Gold and Chinese Yuan Price Chart

Weakness in the Chinese Yuan could serve as one possible explanation to the lack of enthusiasm for gold. Considering the relatively strong correlation between XAUUSD and inverse USDCNH, additional upside in spot gold prices could be limited despite falling yields if trade tension keeps CNY under pressure.

- Written by Rich Dvorak, Junior Analyst for DailyFX

- Follow @RichDvorakFX on Twitter

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

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