Gold Price Holds Steady Amidst Surging Treasury Yields and US Real Yields Surge. Could XAU/USD Face Downward Pressure?
Gold Market in Flux as XAU/USD Treads Cautiously, Focusing on Upcoming Fed Meeting and Yield Trends
Amidst the anticipation building around the Federal Reserve’s Jackson Hole economic symposium, the gold price remains resilient, maintaining its position near US$ 1,900 in the spot market. As the trading community awaits the event scheduled for Thursday, the precious metal is navigating the challenges posed by escalating Treasury yields.
Significantly, the benchmark 10-year note has recently reached its highest yield since 2007, climbing beyond 4.36%. This surge follows a dip to 3.57% in June, indicating the relentless upward march of Treasury yields in the ongoing selling spree within debt markets.
Of greater concern to advocates of the yellow metal is the noticeable rise in US real yields. These real yields are calculated by subtracting the market-implied inflation rate from the nominal yield, with the inflation rate sourced from Treasury inflation-protected securities (TIPS) for the corresponding term. This inflation rate, referred to as the breakeven inflation rate, has demonstrated stability over the past month, enabling an ascent in real yields. The impact of this surge has the potential to undercut the attractiveness of gold, as it fails to offer investors and traders a competitive return. In essence, holding gold carries a cost of carry.
These developments draw attention to the nominal Treasury and the ramifications of the upcoming Jackson Hole event, which might shape the trajectory of the gold market moving forward.
Reflecting on history, the US 10-year real yield surpassed 2% on Tuesday, reaching levels unseen since July 2009, a period when the gold price hovered around US$ 925. It is worth noting that during the subsequent downturn in real yields, culminating in nearly -1% around 2013, gold experienced its zenith at US$ 1,920 in 2011. Should the trend of surging real yields persist, the gold price could potentially experience downward pressure, as illustrated in the subsequent chart analysis.
In the upcoming week, the focus remains on the cascade of Fed speakers expected to provide insights during the Jackson Hole symposium, with particular attention directed at the speech by Fed Chair Jerome Powell on Friday.
Navigating the Gold Landscape: Technical Analysis Perspective
As the gold price charts its course, technical analysis offers insights into potential support and resistance zones:
Support Zones:
- The 1885 – 1895 area has emerged as a crucial support zone, characterized by a cluster of prior lows, a breakthrough, and the 38.2% Fibonacci Retracement level of the move from 1614 up to 2062.
- Further downward, the 50% Fibonacci Retracement at 1838 is poised to provide additional support.
Resistance Levels:
- On the upper end, resistance could manifest at the recent peak of 1897.
- A psychological milestone of 2000 could also function as a resistance point, coinciding with a significant breakpoint.
In the midst of evolving market dynamics, the interplay between economic indicators, yield trends, and market sentiment assumes paramount importance in predicting the future trajectory of the gold price. The upcoming Jackson Hole symposium holds the potential to be a pivotal juncture, potentially shaping the response of the gold market to the evolving economic landscape.
Disclaimer: Market conditions are subject to change, and the potential impact of various factors on gold prices may vary. It is recommended to stay updated with the latest market developments and insights from experts.