The price of gold started the week by falling to a two-month low, as concerns about the US debt ceiling subside while US yields are increasing. Over the past few weeks, Treasury yields have been steadily rising across the yield curve, particularly at the shorter end.
On Friday, the benchmark 2-year bond reached above 4.60%, after having dipped to 3.66% earlier in the month.
The 1-year note also reached a 23-year high on Friday, nudging 5.30%. It had touched 4.03% in early March, and the higher rate reflects the market’s perception that the Federal Reserve is less likely to cut rates this year. Interest rate swaps and futures markets are now pricing in this concept for 2024.
The higher returns from US Dollar-denominated debt seem to be broadly supporting the value of the US Dollar.
The US Dollar has been strengthening against many currencies, and the overall commodity complex is generally lower, although silver managed to rally on Friday. However, it still ended the week down, and it is currently steady at around US$23.30 per ounce.
One factor undermining gold is the rise in US real yields, which are the nominal yields adjusted for inflation. The widely watched US 10-year real yield is approaching 1.60%, a level not seen since the regional banking crisis in March. When inflation-adjusted returns increase, investors may question the outlook for non-interest-bearing commodities like gold.
The US Dollar’s recent upward trend and the direction of the DXY (USD) Index may influence the next move for gold. Additionally, gold volatility has been declining, indicating that the market is relatively calm with the current pricing.
From a technical analysis perspective, gold remains within an ascending trend channel that began in November of the previous year but is currently testing the lower bound of that channel.
The failure to break new highs above the early May peak of 2085.4 has created a Triple Top pattern, potentially establishing a resistance zone in the range of 2080-2090. A breakthrough above these levels could suggest evolving bullish sentiment. The next level of resistance might be near the upper ascending trend channel line, currently around 2160.
On the downside, the price is at a critical juncture, challenging the ascending trend line. There are previous lows near that trend line, as well as the 100-day Simple Moving Average (SMA). A clear break below 1930 could trigger a bearish move, but if these levels hold, it may indicate the continuation of the overall bullish trend. The price action in the next few sessions might provide clues for the medium-term direction.
