Higher US Yields, Dollar Send Gold to 6-Week Low


Gold (XAU/USD) Analysis

  • Gold sinks as yields and strong US economy weigh on the metal
  • Gold selloff picks up steam after confluence resistance tag
  • GLD outflows pick up as gold price heads lower
  • The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

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Gold Sinks as Yields and Strong US Economy Weigh on the Metal

Gold reaches 6-week lows as the selloff continues after breaching $1915. With 10-year US treasury yields at levels last seen in 2008, the risk-free rate now offers investors an attractive yield – seeing the non-interest-bearing metal languishing further.

The selloff now has $1893 (the June low) in sight with the long-term level of $1875 the next big level of support. A moderately lower CPI print last week in the US did little to move market sentiment as rate cuts are only anticipated around the middle of next year. $1915 remains the most immediate level of resistance in the event prices pullback after failing to break below the June low.

Gold Daily Chart

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Source: TradingView, prepared by Richard Snow

After last week’s US CPI print on Wednesday, bond yields towards the end of the curve began creeping up once again. The 2s-10s spread (spread between the 2 year treasury yield and the 10-year yield) has been seen narrowing since the end of July, as the recession indicator eases back a little.

US and Other 10-Year Government Bond Yields

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Source: TradingView, prepared by Richard Snow

Gold Selloff Picks up Steam After Confluence Resistance Tag

The weekly chart shows the bearish breakdown and the key levels in the lead up. After seeing a weekly close below the longer-term ascending channel, bulls often attempt a retest of support which has become resistance.

Find out how to prepare ahead of potential breakouts by reading our dedicated guide on the matter below:

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Price action did make such a move as bulls bid prices up to the confluence area of resistance highlighted in the square. This zone comprises of the channel support turned resistance of the ascending move (grey channel) and the channel resistance of the more recent descending channel (blue channel).

The weekly chart helps isolate the importance of the $1875 level as it has provided multiple turning points for prior price action.

Gold Weekly Chart

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Source: TradingView, prepared by Richard Snow

A steady stream of outflows have been witnessed in the worlds largest gold ETF, with the trend developing at the start of June. As gold prices drop, physical selling of gold is likely to continue to adjust the portfolio.

SPDR GLD ETF Fund Inflows/Outflows

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Source: TradingView, prepared by Richard Snow

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— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX




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