Gold is again feeling the heat from rising U.S. real yields following upbeat U.S. data over the past few days.
In mid-August, gold rebounded from strong support at the 200-day moving average and the June low of 1890. This was related to a brief fall in U.S. real yields and the fact that data released in the second half of August failed to meet overly optimistic expectations (the U.S. Economic Surprise Index hit a two-year high at the end of July and then cooled).
With the Fed unwilling to commit to raising interest rates, there is little incentive for yields to fall significantly if the economy is resilient. Comments from Fed Governor Christopher Waller and Boston Fed President Susan Collins reiterated the data dependence of the path of monetary policy. The path of least resistance for yields remains sideways to upward.
U.S. real yields continue to hover near multi-month highs hit in August. Rising nominal interest rates, combined with easing price pressures/inflation expectations, have pushed real interest rates higher, raising the opportunity cost of holding the zero-yielding yellow metal.
Gold prices have retreated from important resistance levels after briefly rebounding from strong convergence support in late August. The recent decline increases the likelihood of lower highs and lower lows since May. To reverse this bearish pattern, gold would need to rise above at least last week’s high of 1952. In turn, for gold to rebound, it needs to hold key support at the lower edge of the Ichimoku equilibrium chart. Now testing the 240 minute chart.
Failing that, gold could be pushed back to key support levels at the 200-day moving average and the June/August lows of 1885-1890. As mentioned earlier, any break below this support could pave the way towards the February low of 1805. Importantly, any break below 1885-1890 would halt the uptrend starting in 2022.
Importantly, this would increase the likelihood that the stunning multi-month rally is corrective rather than the start of a new uptrend – a point that has been underscored in recent months.