- Gold prices remain stagnant within this week’s $ 1,725-1,745 range amid the conflicting forces of a stronger dollar versus lower yields.
- But with risks sloping to the upside for both the USD and returns, the long-term outlook for gold is not very good.
Spot prices of gold they remain locked within this week’s $ 1,725 to $ 1,745 range, and prices have recently rallied to the top of this range before pulling back. The 21-day moving average remains a sticky level for spot gold, with prices barely moving more than $ 10 so far this week; the DMA of 21 is currently around $ 1,729.50. On the day, spot gold is trading sideways.
Performance of the day
As has been the case throughout the week, spot gold prices remain caught between the conflicting forces of a gradually rising US dollar (the DXY has now dropped to 92.70, its highest levels so far this year. , after it surpassed the 92.00 level on Tuesday) in the face of falling US government bond yields Real yields (i.e., inflation-adjusted government bond yield) are more closely correlated with gold prices than nominal returns, but both fall sharply on the week; 10-year TIPS yields have fallen below -0.7% again from highs above -0.6%.
The bond market sell-off that has driven yields higher has moderated this week, likely as a result of profit-taking by short bonds, as well as higher yields that attract higher levels of investment: Recent US government debt auctions have gone well and a 7-year bond auction is in focus later in the session. Meanwhile, a safe-haven offer in the bond markets could also help depress yields; This week has seen concerns grow over the spread of Covid-19 in Europe and elsewhere, as well as talks in the US about higher corporate taxes to fund the infrastructure stimulus package: risk assets have suffered as a result and this could be helping the bonds. Note that many desks also call for month-end flows to be positive on bond price (and negative return).
If bond yields continue to decline, gold should rise and only a stronger USD could stop this. But amid the current market environment, risks to the USD appear to be tilted to the upside; The dollar has also been gaining amid more defensive risk tone, as markets worry about rising Covid-19 cases and lockdown in Europe and other key emerging economies, as well as rising tensions. between the West and China and Russia.
While the global outlook has darkened, things are still looking pretty positive in the US, with the vaccine launch going well and the economic recovery at the moment looks very well on track (survey data for the March have been very positive). Fed officials, while admitting that there is a long way to go to a full economic recovery, are optimistic about the US economy this year and some even speak of increases in 2022 and 2023. This narrative of optimism in the US But growing pessimism abroad has been supporting the USD and, if it continues, this could hurt precious metals, or at least deprive them of any gains that might have come from lower bond yields.
Not that most analysts expect bond yields to drop substantially more from here anyway; The aforementioned US economic optimism, if it continues (as most expect it to) will likely continue to drive yields higher, even if the ride is bumpy (as has been the case this week). In the long term, this is unlikely to be a positive for gold.
Technical levels
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