Gold Price Finds Traction as US Dollar Pauses Despite Higher Yields

Gold, XAU/USD, FOMC, Treasury Yields, Real Yield, US Dollar, Debt Ceiling – Talking Points

• The gold price has recovered from a run lower, but headwinds remain
• Treasury yields and real yields might have something to say for the yellow metal
• The US Dollar might see some action if the debt ceiling is raised. Will it drive XAU/USD?

The gold price dipped to a 2-month low last week but has since consolidated with the US Dollar appreciation pausing from its recent run higher.

Treasury yields have been supportive of the ‘big dollar’ with the benchmark 2-year bond clipping 4.35% on Friday and again this week after having traded at 3.66% earlier this month.

Similarly, the 10-year note is trading above 3.7% after touching 3.30% a few weeks ago. Perhaps the focus for gold traders though is the rise of US real yields.

The real yield is the nominal yield less the market-priced inflation rate derived from Treasury inflation-protected securities (TIPS) for the same tenor.

The US 10-year real yield is currently eyeing a move over 1.50%. Of some concern for gold bulls, when it was at this level prior to the collapse of Silicon Valley Bank Financial et al, gold was below US$ 1,850.

Going into Tuesday’s session, the debt ceiling issue in the US appears to be finally heading in the right direction. After talks on Monday, President Joe Bidden and House Speaker Kevin McCarthy have both said that a default is not on the cards.

While the news is mostly welcomed, markets appear to be waiting for further clarity with little price response across markets thus far.

The US Dollar has been gathering some bullish momentum of late and direction in the DXY (USD) Index might lead the precious metal on its next move.

GC1 (GOLD FUTURES), US 10-YEAR REAL YIELD, DXY (USD) INDEX

Chart created in TradingView

GC1 (GOLD FRONT FUTURES CONTRACT) TECHNICAL ANALYSIS

Gold remains in an ascending trend channel that began in November last year.

At the start of this month, GC1 made a high of 2085.4 after clearing the March 2022 peak of 2078.8 but fell short of overcoming the all-time high of 2089.2. The wholesale spot price of gold has also seen a similar setup.

This may indicate that the 2080 – 2090 area might offer a resistance zone. This is also a Triple Top which is an extension of a Double Top formation. It could indicate that there is strong resistance at those levels. A move above 2090 would be needed to dismantle this formation.

A break above there may open the way for a test of the ascending trend line, currently dissecting at 2150.

On the downside, support might be provided at the prior lows of 1945.0 and 1936.5 ahead of the ascending trend that currently lies at 1935. The 100-day SMA is also in that vicinity and could add support near there.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter