Gold looks to the UK and Italy for support
Gold took a beating last week at the hands of US rate hike expectations and unexpectedly strong data. Now, renewed dollar strength against EUR and GBP is keeping the pressure up on the yellow metal.
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.
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.