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Gold Price Outlook - Slumping Into Important Support Levels as US Bond Yields Jump

Gold Price Outlook - Slumping Into Important Support Levels as US Bond Yields Jump

Nick Cawley, Strategist

Gold (XAU/USD) Analysis, Price and Chart

  • US dollar underpinned by higher US Treasury yields.
  • Gold falling into multi-month lows.

The recent surge in US Treasury yields to multi-month highs is underpinning the value of the US dollar and weighing heavily on the gold price. The yield on the UST 10-year is now around 1.30%, up from a low print of just over 0.53% in late-July last year. The bond market is continuing to price in a strong economic recovery and inflation, putting pressure on the rates market. The closely-watched UST2-10s is currently around 116 basis points, a near three-year high. Higher US yields help to underpin the US dollar by giving it an advantage against other currencies with lower yields.

A range of risk-on markets remain supported in the short- to medium-term as investors wait for the US stimulus package to be agreed and announced. While the Democrats may not get the $1.9 trillion that they are after, even a paired-back figure around $1.5 trillion would give both Main street and Wall street a sizeable boost. This boost to the economy would fuel further inflation expectations down the line, pushing bond yields higher and supporting the US dollar further.

The daily gold chart is looking increasingly negative with the November 30 low of $1,765.6/oz. the next target. This also coincides with the 50%Fibonacci retracement level from the March-August 2020 rally. Below here there is a cluster of old highs and lows all the way down to the early-June swing low at $1,670.7/oz. The precious metal trades below all three moving averages, which remain in sequence.

Gold Daily Price Chart (June 2020 – February 17, 2021)

Gold Price Outlook - Slumping Into Important Support Levels as US Bond Yields Jump

Client sentiment shows 86.91% of traders are net-long with the ratio of traders long to short at 6.64 to 1.The number of traders net-long is 8.96% higher than yesterday and 14.02% higher from last week, while the number of traders net-short is 16.77% lower than yesterday and 18.65% 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.

What is Market Sentiment and How Does it Work?

What is your view on Gold – are you bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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

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