Gold price bubble bursts as real yields leap ahead of the Fed
Gold has slipped down the elevator shaft as commodities sink; real yields have continued higher, boosting the US dollar and Fed rate rise is all set for later today.
Gold has done a screeching u-turn after approaching a record high last week. The entire commodity complex has seen wild swings in price as the threat of war undermines supply lines and post-pandemic recoveries.
While the broader commodity price action has played a role in the demise of the precious metal, rising real yields are also working against it. The US 10-year real yield has risen 45 basis-points since last week’s low.
Over this period, market priced inflation has seen small variations, but nominal Treasury yields has been doing the heavy lifting, rising 48 basis points for the 10-year tenure. The 10-year note is currently yielding around 2.15%.
The entire Treasury curve has been increasing their rates of return ahead of today’s Federal Reserve meeting. A 25 basis-point hike is baked in for rates lift off and this has helped to boost the US dollar.
The US dollar, as represented by the DXY Index, is currently hovering near levels not seen since May 2020.
The DXY index is a US dollar index that is weighted against EUR (57.6%), JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%) and CHF (3.6%).
The haven status of the US dollar has also contributed to its strengthening as the Ukraine war unfolds. In times of uncertainty the Japanese Yen and the Swiss Franc typically see inflows as well, however, the US dollar has outperformed these fellow haven currencies as well.
If the Fed sticks to its plan later today, it may not have much impact as it has been very well telegraphed. Any variation from a 25 bp hike could see further volatility.
Gold, US dollar (DXY) and US 10-year real yield
Gold technical analysis
Unable to overcome the all-time high at 2,075, the market rejected the gold rally.
A close back inside the 21-day simple moving average (SMA) basedBollinger Band saw further moves south.
Crossing below the 10 and 21-day SMAs confirmed the withdrawing of bullish momentum
Support on the downside could be at the pivot point of 1877.15 or the 55 and 100-day SMAs, currently at 1864.67 and 1837.06 respectively. Below that, an ascending trend line may provide support just above 1800.
On the topside, resistance might be at the pivot point of 1974.40 or the previous peaks of 2070.42 and 2075.14
Follow Daniel McCarthy on Twitter at @DanMcCarthyFX
This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. This information Advice given in this article is general in nature and is not intended to influence any person’s decisions about investing or financial products.
The material on this page does not contain a record of IG’s trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.
Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.
Take a position on indices
Deal on the world’s major stock indices today.
- Trade the lowest Wall Street spreads on the market
- 1-point spread on the FTSE 100 and Germany 40
- The only provider to offer 24-hour pricing
Live prices on most popular markets
- Forex
- Shares
- Indices
See more forex live prices
See more shares live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
See more indices live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.