GOLD PRICES OUTLOOK
- Gold prices surge and reach their best levels in almost a week supported by a weaker U.S. dollar and cratering bond yields
- Precious metals maintain a negative outlook despite Wednesday’s rally in the space
- This article looks at key technical levels to keep an eye on in XAU/USD
Trade Smarter – Sign up for the DailyFX Newsletter
Receive timely and compelling market commentary from the DailyFX team
Subscribe to Newsletter
Gold prices soared on Wednesday, bolstered by a deep retrenchment in global bond yields and a weaker U.S. dollar. In the afternoon trade, XAU/USD was up about 2% to $1,670, its best level since last Thursday. During the day, the U.S. dollar (DXY) dipped more than 1% as the U.S. Treasury curve shifted sharply lower, with the 10-year note sinking more than 20 basis points to 3.80% from its multi-year high of 4.01% set in the overnight session. Meanwhile, the plunge in UK rates was more brutal. For example, the yield on gilts maturing in 30 years plummeted more than 130 basis points to 3.92%, the largest one-day drop since 1992.
Volatility in fixed income space was undoubtedly triggered by the Bank of England’s unexpected “quantitative easing” decision. For context, BoE announced a dramatic intervention in the bond market to stave off a crash, pledging unlimited purchases of long-term debt, despite ongoing efforts to tighten monetary policy in the fight to tame sky-high price pressures. The slump in yields quickly spread to other parts of the world, with traders speculating that major central banks will soon have to back off their hawkish strategy to avoid the kind of chaos that is unfolding in the UK.
UK AND US NOMINAL BOND YIELDS
Recommended by Diego Colman
Get Your Free Gold Forecast
Focusing on the US, it is very difficult to envision the Fed changing course like its peer on the other side of the Atlantic, especially after its recent guidance has reinforced the message that borrowing costs will have to continue to rise and remain high for some time to bring inflation down and force it back to the 2% target. This means that nominal US bond rates will soon resume their ascent, paving the way for real yields to remain elevated and continue to weigh on precious metals, as has been the case over the past few months. In this environment, the U.S. dollar is also likely to command strength, preventing gold prices from staging a durable recovery, at least in the near term. Against this backdrop, traders could soon begin to fade the rally in XAU/USD.
GOLD PRICES TECHNICAL ANALYSIS
After bouncing off technical support at $1,610/$1,620, XAU/USD is quickly approaching a key resistance in the $1,670/$1,680 area. If buyers manage to push prices above this barrier, we could see a move towards $1,700. On further strength, the focus shifts to $1,720. On the flip side, if sellers resurface and spark a bearish reversal from current levels, we could soon see a retest of the 2022 lows.
of clients are net long.
of clients are net short.
GOLD PRICES TECHNICAL ANALYSIS
EDUCATION TOOLS FOR TRADERS
- Are you just getting started? Download the beginners’ guide for FX traders
- Would you like to know more about your trading personality? Take the DailyFX quiz and find out
- IG’s client positioning data provides valuable information on market sentiment. Get your free guide on how to use this powerful trading indicator here.
—Written by Diego Colman, Market Strategist for DailyFX