Gold and Silver Prices in Peril as Yields Surge, Technical Setup on XAU/USD

Gold and Silver Prediction:

• gold And Silver prices With US revenue rising across the Treasury curve
• Non-yielding precious metals tend to underperform when higher nominal rates boost returns on competing assets, such as government bonds.
• This article looks at the XAU switch /American dollarLevels to watch in the upcoming trading sessions

Most read: USD Fluctuates But Outlook Shines, EUR/USD and USD/JPY are embarking in divergent directions

Gold and silver prices fell on Wednesday, dragged down by a rally in US yields after the Bank of Canada’s unexpected decision to resume its tightening campaign after a brief pause. In late afternoon trading, XAU/USD was down 1.2% at $1,957, while XAG/USD was down about 0.5% at $23.55. In general, non-yielding precious metals tend to perform poorly when higher nominal rates boost returns on competing assets, such as government bonds.

The chart below shows that the treasury curve has shifted sharply upward compared to the previous session.

US Treasury Production Curve

source: TradingView

The BoC’s resumption of the tightening campaign was after interest rates were held steady in the previous two meetings A wake-up call for the markets. Many traders believe that if the Fed accidentally uses a similar strategy and hits the pause button in June, it may start walking again in July and do so within in a more aggressive manner, especially if the short gap allows inflation to regain its strength. This could lead to a higher peak rate and no mitigation until 2024.

The risk that the US central bank will have to maintain a restrictive monetary policy stance for longer than initially expected to restore price stability will keep bond yields tilted to the upside, strengthening the US dollar in the process. In this environment, gold and silver will struggle to stay afloat, which means that a deeper pullback could be just around the corner in the near term.

The chart below shows how a stronger US dollar and rising 10-year nominal yield have undermined gold and silver prices in recent weeks (gold and silver are shown on an inverted scale).

Gold, silver, US dollar and 10-year productivity chart

source:TradingView

Technical analysis of gold prices

The recent decline in the price of gold appears to be a corrective move within a medium-term uptrend, but the tendency could turn to the downside very quickly if prices break through the uptrend line that has been guiding the market upwards since November 2022. However, the level that should Watching it is $1950 on the gold futures chart.

In terms of possible scenarios, if gold futures fall below $1950, the bulls could throw in the towel, paving the way for selling towards $1905, which is the 38.2% Fibonacci retracement of the September 2022/May 2023 advance. On further weakness, focus shifts to $1,880.

Conversely, if gold establishes a base around the current levels and starts to rebound, the initial resistance appears at $1,980. Removing this cap could revive buying interest, paving the way for a rally towards the psychological $2,000 mark.

Blueprint for the golden future

Gold futures chart prepared using TradingView