Jump to content

Gold price trapped in range as real yields rise amid Fed action


Recommended Posts

Gold has been moving sideways as sanctions fallout continues; real yields are inching higher on Fed action lowering inflation pricing and with low volatility.

Source: Bloomberg

Gold inched higher overnight on concerns of further sanctions against Russia from the EU. It was also reported that the London Metals Exchange (LME) had recently held discussions with stakeholders about the future of taking delivery of Russian metals.

It is believed that the LME will comply with any government regulation but will not go beyond that at this stage.

The backdrop for the precious metal remains challenging, with US real yields climbing higher. A higher real return from Treasury notes provides an interest-bearing alternative to the non-yielding yellow metal.

The recent push higher in real yields is the result of inflation expectations being lowered, as a result of the Federal Reserve appearing to get serious about tackling price pressures for consumers.

Until now, the market saw the Fed as being too dovish. Expectations for more aggressive tightening are growing, with only six Federal Open Market Committee (FOMC) meetings left in the year and eight hikes being priced in, this implies two hikes of 50 basis-points (bp).

While inflation expectations have been lowered, nominal yields have been steady. The benchmark ten-year bond remains near 2.40%, not far from the recent three-year peak of 2.56%.

Gold against US ten-year real yield, US ten-year nominal yield, US ten-year breakeven inflation

Gold against us ten-year real yield, us ten-year nominal yield, us ten-year breakeven inflation
Source: TradingView

Gold technical analysis

In March, the gold price rallied to a peak of 2,070.42 but fell short of the all-time high of 2,075.14 seen in July 2020 creating a Double Top. In the bigger picture, this failure to break higher could be a bearish signal.

A potential bearish Head and Shoulder pattern is emerging and a break below the neckline at 1,875.50 may confirm the pattern.

The price is currently consolidating in a tight range of 1,892 – 1965 as the right shoulder is developing. These two levels are potential support and resistance respectively.

This consolidation is bringing volatility lower as illustrated by the narrowing of the width in 20-day Simple Moving Average (SMA) based Bollinger Band.

The price is currently between the 20 and 55-day SMAs, further suggesting a range trade environment might persist for now.

Source: TradingView

Follow Daniel McCarthy on Twitter at @DanMcCarthyFX

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. This information Advice given in this article is general in nature and is not intended to influence any person’s decisions about investing or financial products.

The material on this page does not contain a record of IG’s trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

Daniel McCarthy | Strategist
05 April 2022

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
    • Total Posts
    • Total Members
    • Most Online
      10/06/21 10:53

    Newest Member
    Joined 30/09/23 18:13
  • Posts

    • Sorry, I didn't get it... What's Dual investment? 
    • The crypto market appears to be showing signs of recovery, with significant improvements in the Sharpe Ratios of Bitcoin, BGB, and Ethereum, according to an article published on Friday.  The Sharpe Ratio, a measure used to understand the return of an investment compared to its risk, has seen a notable increase for both cryptocurrencies. Bitcoin's Sharpe Ratio has risen from -2.4 to 0.68, while Ethereum and BGB have also experienced a similar uptrend. This change signifies higher returns at lower risk, which is expected to attract more investors to the crypto market. In addition to the improved Sharpe Ratios, increased network activity and trading volume as shown on CEXs like Bitget, Binance, and a few DEXs are suggesting a healthier market state. The current trading prices of Bitcoin, reflect this overall positive market sentiment. As of Friday, Bitcoin was trading at $27,069.73, BGB at $0.454 and Ethereum at $1,677.89. These developments are significant as they indicate reduced risk in the crypto market. The increase in the Sharpe Ratios for Bitcoin, BGB, and Ethereum suggests that these cryptocurrencies are becoming less risky investments, which could potentially lead to an influx of new investors into the market.  Could this rise in Sharpe Ratios coupled with increased network activity and trading volume point towards a recovering and less risky crypto market?
    • Hi, That's great, thank you very much. Very helpful! Many thanks.
  • Create New...