GOLD, XAU/USD, US DOLLAR, TREASURY YIELDS – Talking Points
- Gold had a look at a topside break before retreating inside the range.
- An uptick in US Treasury yields lifted the US Dollar in certain pockets
- USD strength didn’t sink all commodities. Can XAU/USD recover?
Gold has taken a hit to start the new year as Treasury yields soared, boosting the US Dollar.
Bond bears have jumped out of the gate in 2022 with interest rates moving higher as expectations for central bank hawkishness remain on the radar. The benchmark US government 10-year bond yield went from 1.50% to trade above 1.63%.
The market is anticipating that the Federal Reserve will end their asset purchase program and hike rates 3 times by the end of this year. Higher yields mean that holding dollars becomes a more attractive investment option than the yellow metal.
The selloff in fixed interest was matched by the buying of selective risk assets. While equity markets have started the year on solid footing, commodities and growth-linked currencies have not seen an up lift so far.
The Australian, Canadian and New Zealand Dollar’s were all weaker as US Dollar strength dominated.
While gold and silver opened the year lower, industrial metals and energy markets have mostly held up so far. This points toward interest rates being the driving force for lower precious metal prices.
With that in mind, the meeting minutes from the last Federal Reserve gathering will have extra attention when they are published on Wednesday. Then on Friday, market attention will turn toward the latest US jobs data.
GOLD TECHNICAL ANALYSIS
Although the first trading day of 2022 saw the gold price decline by 1.5%, volatility remains subdued for now. This is illustrated by the relatively narrow width of the 21-day simple moving average (SMA) based Bollinger Band.
The price finished last year above the upper Bollinger Band and the decisive move back inside the band could hint at a potential reversal lower.
Just prior to the sell-off, it made a 6-week high at 1831.65, which was just shy of the pivot point at 1834.01. These levels may offer resistance, as well as the November high of 1877.15.
On the downside. support could be at the pivot points and previous lows of 1789.57, 1784.92,
1761.99, 1758.93, 1753.10 and 1721.71.
Chart created in TradingView
— Written by Daniel McCarthy, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter