Gold Price Finds Traction as US Dollar Pauses Despite Higher Yields
Last week, the price of gold experienced a decline and reached its lowest point in two months. However, it has since stabilized as there has been a halt in the recent increase of the US Dollar’s value, which had been contributing to the decline.
The ‘big dollar’ has been bolstered by Treasury yields, as evidenced by the benchmark 2-year bond’s rise to 4.35% on Friday and its continued upward trend this week. This marks a significant increase from its earlier rate of 3.66% earlier in the month.
The 10-year note is currently being traded at a rate exceeding 3.7%, which marks a significant increase from its previous rate of 3.30% just a few weeks ago. This trend may be of particular interest to those involved in the gold trading industry, as there has been a notable increase in US real yields.
In the academic context, the real yield can be defined as the nominal yield that has been adjusted for the prevailing market-based inflation rate, which can be derived from Treasury inflation-protected securities (TIPS) that have a similar tenor.
The US 10-year real yield is currently on the verge of surpassing 1.50%, which could potentially cause unease for gold investors. It is notable that during a previous instance when the yield reached this level before the collapse of Silicon Valley Bank Financial and similar events, gold was valued below US$1,850.
The US 10-year real yield is currently on the verge of surpassing 1.50%, which could potentially cause unease for gold investors. It is notable that during a previous instance when the yield reached this level before the collapse of Silicon Valley Bank Financial and similar events, gold was valued below US$1,850.
Although the news is generally considered positive, there seems to be a sense of caution among market participants, as evidenced by the lack of significant price movements in various markets. Further clarification may be needed before a more pronounced response can be seen.
Recently, there has been an increase in bullish momentum of the US Dollar. This may have an impact on the direction of the DXY (USD) Index and subsequently influence the movement of the precious metal.
The three variables of interest are GC1, which refers to gold futures, the US 10-year real yield, and the DXY index representing the strength of the US dollar:
GC1 (GOLD FRONT FUTURES CONTRACT) TECHNICAL ANALYSIS
Gold has been exhibiting an upward trend channel since November of the previous year. In the beginning of the current month, GC1 reached a peak of 2085.4 after surpassing the March 2022 height of 2078.8, yet fell short of exceeding the all-time high of 2089.2. The wholesale spot price of gold has manifested a comparable configuration.
The observation possible academic rephrasing suggests that the range between 2080 and 2090 could pose a zone of resistance. Moreover, this formation corresponds to a Triple Top pattern that follows from a Double Top configuration, implying pronounced resistance around those levels. Therefore, breaching the 2090 threshold would be necessary to nullify this pattern.
In the academic context, a potential upward shift could result in an opportunity to test the ascending trend line at its current position of 2150. Conversely, if a decline occurs, support may be found at previous lows of 1945.0 and 1936.5 before reaching the ascending trend resting at 1935. Additionally, the 100-day SMA is located in close proximity and could provide additional support in that area.
