Gold Prices Decline Amid Rising Treasury Yields
Gold prices (XAU/USD) experienced a 0.7% drop during European trading on Thursday, settling around $4,490. Earlier in the day, the precious metal had peaked at an 11-week high of $4,527. This decline can be attributed to increasing pressure as U.S. Treasury yields began to recover from losses seen the previous day.
As of this writing, the 30-year Treasury yield was up by 0.5%, nearing 5.21%, while the yield on the 10-year Treasury note had risen by 0.67% to approximately 4.67%.
When yields on interest-bearing assets increase, non-yielding assets like gold tend to become less appealing.
The recent downturn in U.S. Treasury yields occurred late Wednesday after an announcement from the U.S. Treasury indicated plans to at least double the maximum size of liquidity support buyback operations for long-term nominal securities. This action aims to manage the rising costs of borrowing, as reported by The Wall Street Journal.
Nonetheless, financial markets are reacting to increases in oil prices and rising government debt, which are contributing to heightened inflation expectations. This scenario has resulted in a noticeable recovery in U.S. Treasury yields.
According to analysts at Jefferies, the Treasury’s announcement may not significantly resolve the fundamental issues impacting bond prices, like persistent budget deficits and growing inflation expectations, as noted by Reuters.
Technical Analysis of Gold
Currently, XAU/USD is trading at around $4,490.45, which is considerably above its 20-day exponential moving average (EMA) of $4,299.17. This positioning suggests a bullish sentiment in the short term. Support for this short-term trend is bolstered by the gap between the current price and the EMA, with the Relative Strength Index (RSI) sitting at 64.64, indicating strong upward momentum but not yet overbought.
If there is a pullback, near-term support is observed around the recent closing point of $4,490, with more substantial buying interest likely to appear near the 20-day EMA at $4,299. Should a correction occur, buyers may step in to safeguard the overall upward trend. Currently, there are no immediate technical resistance levels from existing data, hinting that the most likely movement could be upward. A sustained drop towards the $4,299 mark would be necessary to undermine the current bullish sentiment.
