Gold tumbles as the dollar and bond yields rise

Ole Hansen

Head of Commodity Strategy
Ole Hansen joined Saxo Bank in 2008 and has been Head of Commodity Strategy since 2010. He focuses on delivering strategies and analyses of the global commodity markets defined by fundamentals, market sentiment and technical developments.

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.

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,

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.

 

 

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.

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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