Despite lower yields post-CPI, gold prices remain tepid. Could this indicate the end of the bullish case for gold?
On Wednesday, gold experienced significant fluctuations in value. At the start of trading that day, the precious metal saw a substantial increase of almost 0.85% due to lower-than-anticipated U.S. CPI data resulting in a sharp decline in U.S. Treasury yields. Nevertheless, this upturn was brief and by late afternoon in New York, XAU/USD had fallen by approximately 0.2% to $2,035 at the time of writing, returning to negative territory.
Bullion’s unexpected response to the bond movement implies that the concept of “decreasing inflation” may have been pre-negotiated. This is due to the fact that prices have increased by over 11% since the beginning of March, resulting in a stretched rally. Therefore, it can be inferred that nominal bond yields would need to decline significantly more in order to reach new highs and potentially set a new record for gold.
The likelihood of gold regaining its value is not a significant challenge. The US economy is facing increasing challenges, such as stricter credit conditions for businesses and households resulting from the banking sector crisis in March. These factors may lead to a severe recession later this year.
Given the deteriorating economic situation, proactive traders will seek to anticipate the actions of the Federal Reserve and endeavor to pre-emptively capitalize on extensive reductions in interest rates, leading to a decrease in the Treasury curve. Within this context, it is inevitable that the 10-year yield will eventually plummet to new multi-month lows below 3.25%, a level previously observed in April of 2023.
The possibility of an economic downturn, along with the ongoing issue of the U.S. debt ceiling, may lead to a surge in demand for safe-haven assets. Gold, which has traditionally been viewed as a defensive asset, could potentially benefit from this trend as investors seek out safer options in the financial markets. As a result, there is still a bullish outlook for XAU/USD at this time.
GOLD PRICES TECHNICAL ANALYSIS
Although the trajectory of advancement is prone to ascend, it would be unwise to dismiss the possibility of a period of consolidation subsequent to the robust rally that has transpired during the past sixty days. This implies that gold may be confined to a limited interval in the immediate future.
The identification of critical technological thresholds necessitates a close monitoring of the psychological level of $2,000. In the event that this level is surpassed, a decline towards $1,975 may ensue. Conversely, an upward trend may encounter resistance at the $2,050 mark. If this obstacle is surmounted by bullish activity, there is potential for a retesting of the 2023 highs in the near future.
GOLD PRICES TECHNICAL CHART
