GOLD PRICE OUTLOOK: WILL FED CHAIR POWELL STEM THE BLEED AMID SURGING TREASURY YIELDS?
- Gold price action continues to get slammed lower in large response to surging real yields
- The precious metal looks to be consolidating within the confines of a bullish flag pattern
- Fed Chair Powell is on tap to speak and could suggest a tweak to FOMC bond buying plans
Gold prices have struggled since the precious metal peaked August 2020. In fact, gold is on the edge of sinking into bear market territory following its -18% decline from all-time highs near the $2,080-price level. The sustained wave of gold selling pressure largely mirrors the bottom and latest upswing in 10-year US real yields. Gold price action tends to move in the opposite direction of interest rates net of inflation expectations seeing that the precious metal provides no yield.
GOLD PRICE CHART WITH US 10-YEAR REAL YIELD OVERLAID: WEEKLY TIME FRAME (MARCH 2018 TO MARCH 2021)
The surge in Treasury yields has already caught the attention of several Federal Reserve officials, who say they are keeping close tabs on recent bond market developments. This brings to focus a scheduled speech from Fed Chair Jerome Powell due Thursday, 04 March at 17:05 GMT. Traders will likely have an ear out for what Powell has to say about the 10-year Treasury yield spiking above 1.5% for the first time since February last year. This sharp ascent in long-term sovereign interest rates could motivate the central bank to tweak its bond buying plans.
Though increasing the pace of QE seems unlikely at this point in time, Fed Chair Powell might shed light on the possibility of shifting Treasury purchases further out the curve to exert downward pressure on long-term borrowing costs. This could, in turn, provide a much-needed fundamental catalyst to reinvigorate gold bulls.
GOLD PRICE CHART: WEEKLY TIME FRAME (APRIL 2019 TO MARCH 2021)
Chart by @RichDvorakFX created using TradingView
Although gold price action has faced considerable selling pressure over the last few months, it appears that the precious metal continues to oscillate within the confines of its broader bull flag chart pattern. Judging by the MACD indicator, however, momentum remains skewed in favor of the bears. Gold prices are currently searching for technical support around the 61.8% Fibonacci retracement level of last year’s trading range.
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Breaching this zone of confluence between $1,680-1,700 could open up the door to a deeper pullback toward the positively sloped trendline extended through the April 2019 and March 2020 swing lows before the 78.6% Fib comes into consideration. On the other hand, if bulls can defend the $1,700-handle, there could be potential for a bigger rebound toward the 20-week simple moving average. This might correspond with a
change in direction of the relative strength index.
— Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight