The 10-year US Treasury yield fell sharply yesterday, giving gold a lift. The yellow metal increased by $25 in a single move, giving bulls hope that the surge will go higher.
Because decreasing yields were the primary driver of yesterday’s gold rally, the positive momentum may be short-lived, as the medium-term trend for US yields remains comfortably positive, owing to expectations of increasing interest rates in the US. The Federal Reserve has declared war on inflation and will hike interest rates as a result. Higher interest rates will have a direct positive effect on yields.
Fears of slowing GDP and rising inflation gripped the markets, driving riskier assets lower while increasing demand for classic safe haven assets like gold, US Treasury bonds, and the yen. Increased risk-off flows into US government bonds forced rates lower across the curve, triggering a new downward trend in the dollar. As the greenback resumed its drop from two-decade highs with decreasing yields, the gold price gained.
From a technical standpoint, gold is at a critical juncture. It’s currently testing the 200-DMA resistance, which also happens to correspond with the top of the negative correction band, which has been building since mid-April. However, if the 200-DMA resistance is overcome to the upside, the surge might continue to the $1880/1900 level. That approach could be aided by the Russian shock to gold supplies.