Gold tumbles as the dollar and bond yields rise

Ole Hansen

Head of Commodity Strategy

Gold has tumbled through support at $1300/oz. This is in response to a continued rise in US bond yields and the dollar. The combination of US 10-year yields trading above 3% and with break-even yields still stuck below 2.2%, the real yield – which is important for gold – has climbed to 0.90%, an almost five-year high.

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Adding to this, the negative impact of a renewed rise in the dollar, traders found the downside in gold to be in the direction of least resistance,

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The continued rally in crude oil, which may not pause until $80/b is reached (Saudi Arabia’s target), has raised concern about rising inflation.

 

 

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And this has increased the risk of another three US rate hikes this year to 40% while another rate hike has also been gathering some momentum.

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The technical levels to look out for, apart from the potential risk of short covering on a swift return above $1305/oz, are now $1286/oz and below that, as low as $1262/oz. Geopolitical risks, which have helped drive crude oil to a four-year high, have so far provide limited support to gold given the immediate risk of rising yields and the stronger dollar. The S&P 500 is currently down by $22 after having rallied $100 during the previous seven sessions. An escalated sell-off in stocks may provide enough support to halt the sell-off above $1286/oz.

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