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Market update: will gold price remain resilient amid rising Treasury yields and a strengthening US dollar?


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The gold price appears comfortable above US dollar going into Wednesday’s trading session; treasury yields are after making new highs again, but gold appears unfazed by it. Will XAU/USD remain bid?

 

original-size.webpSource: Bloomberg

 

Daniel McCarthy | Strategist, | Publication date: Wednesday 18 October 2023 05:07

The gold price is holding the high ground on perceived haven status, despite the return on US government bonds rising to multi-year peaks. The monetary policy-sensitive two-year Treasury note traded at 5.24% overnight for the first time since 2006, after red-hot economic data forced the market to re-examine its outlook for the Federal Reserve Bank’s tightening cycle.

US retail sales expanded by 0.7% month-on-month in September, a beat on the 0.3% forecast and slightly stronger than the burgeoning 0.6% for August. Treasury yields raced higher across the curve, with the five and seven-year bonds seeing the largest run-up, adding around 15 basis points each. The benchmark, 10-year note traded within a whisker of the 4.88% seen earlier this month, the highest since 2007.

In the aftermath, the US dollar has seen some gains against the sterling, yen and Canadian dollar going into Wednesday’s session and it is mostly steady elsewhere. The aussie dollar is a notable exception where the RBA has signalled a more hawkish stance over the last 24 hours.

Technical analysis

For gold, the increase in return of a risk-free, or at least a very low-risk, asset like Treasury bonds might normally challenge the price of the precious metal. However, the unnerving geopolitical backdrop evolving in the Middle East may have seen some support for the perceived haven status for the yellow metal. The situation there appears to be continually evolving and a resolution seems a long way off.

The conflict saw volatility tick higher as measured by the GVZ index, but it has since eased in the last few days. Treasuries were initially bought at the outbreak of the war, pushing yields lower, but that has since reversed.

Looking at the chart below, the rising 10-year Treasury yields and an uptick in the DXY (USD) index are yet to impact the gold price, but it might be worth watching should those markets move abruptly. The GVZ index measures volatility in the gold price in a similar way that the VIX index gauges volatility in the S&P 500.

Spot gold, DXY index, US 10-year Treasury and GVZ index

 

original-size.webpSource: TradingView

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our 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. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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As the USD is counterfeited printed by the government and banksters into oblivion the last man standing will be gold - the only real money. 💰 Peter Schiff and Chris MacIntosh (Capitalist Exploits - a SUPERB newsletter by the way) are both very positive on gold and commodities as the USD inevitably gets destroyed like the Zimbabwe Dollar and the Reichsmark in the Weimar Republic.

I trust governments 100% - to lie about everything and abuse their exorbitant privilege to fund their friends with counterfeit fiat money currency.

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