XAU / USD breaks back above the 21 DMA and into last week’s range

• Spot gold is back above its 21 DMA and within last week’s $ 1,720 – 1,745 range.
• The US dollar has weakened and the yield on US bonds has fallen; this is behind the recovery of gold.

Gold Spot Prices (XAU / USD) have returned above the 21-day moving average, currently at $ 1,720.59, in recent trading to hit session highs above $ 1,730, pushing the precious metal back to last week’s ranges. Now that technical resistance has cleared in the form of the 21 DMA and last week’s lows (which were around $ 1,720), gold bulls will be looking for a move towards last week’s highs of $ 1,745 and perhaps returned to monthly highs at $ 1,755. Precious metals are currently trading around 2.5% gains on the day, having risen from levels touched in the Asian session below $ 1,710 to current levels at $ 1,725.

Performance of the day

US government bond yields are under pressure, and the 10-year yield has fallen sharply to around 1.68%, a sharp change from yesterday’s highs of around 1.75%. Real yields are also experiencing some decline, with the 10-year TIPS yield dropping around 4 basis points on the session to -0.67%. Lower returns are themselves positive for underperforming precious metals, as they make US government fixed income assets a comparatively less attractive place to store cash.

But rising US government bond yields are also weighing on the US dollar. This is also positive for USD-denominated precious metals such as XAU / USD. The Dollar Index (DXY) has recently retraced below the 93.00 level and short-term bears could be targeting a pullback towards the 200 DMA around 92.50 (longer-term USD bulls would likely add longs in such a recoil). If the DXY falls back to its 200 DMA, this will be bullish for gold.

In terms of what’s been driving Thursday’s drop in yields and the US dollar; No single fundamental catalyst stands out as a driver of the movements. Rather, it appears that some position adjustment is taking place; The dollar had a stellar first quarter and therefore could be subject to profit-taking, while US bonds had a torrid first quarter (hence the higher returns) and could be subject to some short hedging.

Markets saw minimal reaction to the latest ISM Manufacturing PMI survey for the month of March – the report was robust but was clouded by mounting evidence of the negative impact of supply chain disruptions, shortages, and delays ( that’s partly why the price paid sub-index has disappeared and remains so high). For reference; The overall index came in at 64.7 versus consensus forecasts for an increase to 61.3 in March from 60.8 in February. As for the sub-indices, new orders rose to 68.0 from 64.8 in February, employment rose to 59.6 from 54.4 (above the expected 53.0) and prices fell slightly to 85.6 from 86.0 (slightly above the expected 85.0). The strong employment sub-index is a positive sign for Friday’s NFPs.

The question now will be whether market participants are willing to buy the falling US dollar and sell the rally in US government bonds (that is, to drive yields higher again). The strong and constantly improving economic outlook for the US, particularly vis-à-vis its developed market peers, means risks are leaning in this direction.

Technical levels