Gold Price (XAU/USD) Outlook Remains Brittle As Risk Storm Nears

The short-term pull-back in the price of gold is now coming under threat from the latest US inflation print – released at 13:30 GMT today – and from the second US Treasury auction of the week. The results of the USD38 billion 10-year UST auction will be known from 18:00 GMT onwards and the market is paying very close attention to both the inflation reading and the auction data.

US Treasury yields have been on the rise for the last few months as investors start to price in inflation concerns further down the line. The ongoing narrative that the latest stimulus package may send price pressures sharply higher has pushed up the yield on the benchmark 10-year from a low of 0.56% in late-July to a current level of 1.55%. Higher UST yields lessen the attraction of gold as a haven asset. Today’s double of the latest US inflation reading and a sizeable 10-year auction could well move US Treasury yields sharply, one way or another.

The daily chart shows that gold remains in a bearish pattern despite Tuesday’s sharp rally. Monday’s sell-off saw the precious metal break below the 61.8% Fibonacci retracement of the March/August 2020 rally, but fail to break below the $1,670/oz. double low made in May and June last year. All three simple moving averages are in sequence and bearish, while gold has just moved out of the oversold territory. A break and open below $1,670/oz. could see the precious metal testing $1,611/oz. A bullish US inflation print/UST 10-year auction should open the way to $1,747/oz. in the short-term, but longer-term price action will likely test the downside.


Gold Price (XAU/USD) Outlook Remains Brittle as Risk Storm Nears

Client sentiment shows 83.63% of traders are net-long with the ratio of traders long to short at 5.11 to 1.We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed Gold trading bias.

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