Gold, XAU/USD, Treasury Yields, Real Yield, US Dollar, Fed, Debt Ceiling – Talking Points
- the gold price surrender to U.S. dollar Recently strength with focus on the Federal Reserve
- Treasury yields and real yields continue to rise and may increase demand for the dollar
- If Washington solves the debt ceiling problem, where will the XAU /American dollar end up?
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The price of gold fell to a two-month low to start the week as concerns about the US debt ceiling appear to be easing at the same time that US yields are rising.
Treasury yields have risen steadily over the past few weeks across the curve, but the most notable changes are seen at the short end of the curve.
The two-year benchmark rose above 4.60% on Friday, after falling as low as 3.66% earlier this month.
One-year bonds also hit a 23-year high on Friday when they jumped 5.30%. It touched 4.03% in early March and the higher rate of return reflects the markets’ perception that the Fed is unlikely to cut interest rates this year. Interest rate swaps and futures markets have launched this concept into 2024.
The high yield of debt denominated in US dollars appears to have broadly supported the “big dollar”.
It’s making multi-month highs against several currencies and the commodity complex is generally lower but silver managed a decent rally on Friday. Although it was still closed last week, and it is stable to start this week near $23.30 an ounce.
Undermining the yellow metal is the rise in real yields of the United States. The real yield is the nominal yield minus the market price inflation rate derived from Treasury Inflation Protected Securities (TIPS) for the same duration.
The widely watched US 10-year real yield is close to 1.60%, a level not seen since the regional banking crisis unfolded in March. When the inflation-adjusted yield rises, investors are left to ponder the outlook for non-interest bearing commodities such as gold.
The US dollar has been on a steady rise lately, and the trend in the DXY (US Dollar) index may lead the precious metal in its next move. At the same time, gold’s volatility has been declining and that could indicate that the market is comfortable with current prices.
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Gold is still in the uptrend channel that started in November last year but is currently testing the lower band of that channel.
The early May high of 2085.4 surpassed the March 2022 peak of 2078.8 but was unable to beat the all-time high of 2089.2. This failure to open new ground to the upside led to the formation of the triple top, which is an extension of the double top formation.
This created a potential resistance area in the 2080-2090 region but a snap above those levels could indicate a developing bullish trend. The next resistance level could be at the upper uptrend channel line which is currently near 2160.
On the downside, the price is making an interesting turn with the uptrend line being questioned. Meanwhile, there are two previous lows near this trend line as well as the 100-day simple moving average (SMA).
A clear break below 1930 could see a bearish move unfold, but if these levels hold, it could indicate that the general bullish trend could continue. In this regard, the price action in the next few sessions may provide clues to the medium-term trend.
– By Daniel McCarthy, Strategist for DailyFX.com
Please contact Daniel via @tweet on Twitter
