Gold, Crude Oil Forecast: Rising Yields And Stronger USD Exert Pressure

Gold and WTI crude oil prices both traded lower during Wednesday’s APAC session, as the US Treasury yields climbed to their highest level seen in almost a year. The 5-, 10-, and 20-Year rates rose by 5bps, 12bps and 15bps respectively from a week ago on reflation hopes, leading the Treasury yield curve to steepen further (chart below). This is negative to non-yielding asset classes like the precious metals, as the opportunity cost of holding them becomes higher.

The DXY US Dollar Index rebounded from a two-week low to 90.64, exerting further pressure on gold and crude oil prices. Meanwhile, investors are waiting for the minutes of the January FOMC meeting for clues into the Federal Reserve’s policy guidance. A more dovish-than-expected stance from policymakers may lead the US Dollar lower and probably provide gold prices some support.

Gold, Crude Oil Forecast: Rising Yields and Stronger USD Exert Pressure

Source: Bloomberg, DailyFX

Renewed stimulus hopes led longer-dated US Treasury yields to climb as expectations for future demand, output and inflation rose. The 10-year rate surged above the 1.30% mark for the first time in eleven months, exerting downward pressure over precious metal prices, which are non-yielding. Their historic negative relationship can be visualized in the chart below. Looking ahead, an impending US fiscal stimulus package, improving pandemic situations, as well as a brighter economic outlook may lead yields to rise further and thus suppress gold prices.

Gold, Crude Oil Forecast: Rising Yields and Stronger USD Exert Pressure

Source: Bloomberg, DailyFX

Technically, gold prices extended lower within a “Descending Channel” formed in early January. Prices tested an immediate support level at US$ 1,787 ( the 61.8% Fibonacci extension) and have since rebounded. The overall trend remains bearish-biased, as suggested by the downward-sloped simple moving average lines as well as a bearish MACD crossover. A breakdown below US$ 1,787 may lead to further losses with an eye on US$ 1,766 (76.4% Fibonacci extension).

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