Gold Price Analysis: All eyes on the greenback and US yields

  • Gold prices are attempting to recover as te DXY stalls in its bullish correction.
  • The dollar could still be a catalyst for a deeper positioning squeeze in the yellow metal.

Gold prices are trading at $1,838.76 and between a low of $1,836.11 and $1,839.47.

Pressured by a relentless correction in the greenback, gold prices have been struggling of late.

The US dollar strengthened for a third consecutive day on Monday, reaching a four week high, as risk aversion swept through currency markets, weighing on bullish attempts on the yellow metal.

With the US markets shut for a holiday on Monday and Joe Biden set to be inaugurated as the next US president on Wednesday, investors are sidelined and watching carefully the new administration’s stance on the US dollar.

At the start of this week, the Wall Street Journal wrote a piece arguing that while the outgoing President Donald Trump has publicly railed against the dollar’s strength for years, Janet Yellen, Biden’s pick to take over the US Treasury, is expected to make clear that the United States does not seek a weaker dollar.

Moreover, the president-elect, Joe Biden, has put out a plan for a $1.9 trillion stimulus package and the market had already baked this into the US dollar.

However, the supply is being unwound and has the opposite effect due to a rise in US Treasury yields.

DXY monthly chart

The prospects of higher rates have squeezed their way through into the market’s sentiment, nailing down the coffin for the gold bugs.

”Gold is a casualty of the Fed’s change in tone, as the Central Bank attempts to test the market’s resiliency against higher rates,” analysts at TD Securities explained.

”After all, recent fedspeak has emphasized reflationary tailwinds, pushing back against the need to extend the weighted average maturity of their Treasury purchases.”

The analysts went on to argue that the rise in rates has thus far remained contained, keeping some complacent length from being shaken-out for the time being.

”That being said, the recent strength in the broad USD may be the catalyst for a deeper positioning squeeze in the yellow metal.’

Credit: FX Street

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