E Gold Prices Extend Gains As Treasury Yields Decline

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US dollar monthly chart

The monthly chart is zoomed out to observe the details. A red circle is marked which indicates that prices can be in a sideways range and once the range is over, the US dollar index must break downside.

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US Dollar Correlated Markets

The fact that the USD dollar index is inversely proportional to the EURUSD is due to correlation phenomena in currencies. Since the US dollar index has developed very bearish charts, EURUSD has developed a very bullish chart. The chart below depicts the bullish structure of the EURUSD. The pair is expected to rise once the US dollar index falls. The instrument has formed a mega bull flag, which has been broken for quite some time. For a long time, price has been testing this flag. It's worth noting that if the US dollar index loss 89, the EURUSD is likely to break 2018-19 highs, signaling yet another bullish signal for the currency pair.

A triple bottom at the bottom angle of the flag supports the bullish flag patterns of EURUSD, indicating that the instrument is under bullish compression. Another CUP development, followed by a handle right after the flag breakout, suggests that the pair's next move will be higher.

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EURUSD Monthly analysis

Effect of 10-years Treasury yield on Gold Market

There is a strong relationship between gold and Treasuries since they are both regarded safe-haven investments. Bond prices have a positive connection with gold, whereas yields have a negative link. The bond price falls when the yield rises, and vice versa. Although investors who store gold miss out on investing possibilities, there is a negative relation between gold and yields. Since gold has no yield, capital flows out of the yellow metal and into bonds as bond rates rise, leading the gold price to decline.

The monthly chart below presents the correlation between gold prices and 10-years Treasury yields. The following chart shows that gold prices began their first bull phase in 2000 and ended in 2011, followed by a 4-5 years’ pullback. In 2019, the second bull phase was confirmed, which we had been discussing with members for quite some time. The primary bull phase resistance was $2,100, which was hit in 2020 by a post-pandemic peak. This resistance of $2,100 can be observed by yearly charts. According to the fundamentals and technical, the pullback from $2,100 to $1,680 is quite normal, and gold is expected to resume its strong rally. It's worth noting that the bull phase 1 begins with the breaking of a triangle, while the bull phase 2 begins with the breaking of a strong inverted head and shoulders. Both patterns were extremely strong, indicating a significant upward movement in gold prices. The chart below clearly shows that gold forms a strong bottom when Treasury yields reach the falling wedge trend line. Since the bull phase 2 bottom was reached in 2019, the Treasury yield peak could begin to fall at any time, offering another strong indication for gold to rise.

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