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Gold approaches resistance as traders watch yields and dollar

Fawad Razaqzada Fawad Razaqzada 08/04/2021
Gold approaches resistance as traders watch yields and dollar Gold approaches resistance as traders watch yields and dollar
Gold approaches resistance as traders watch yields and dollar Fawad Razaqzada
Gold has continued to push higher today, taking advantage of the recent weakness for bond yields and the dollar, after the FOMC minutes last night suggested there are no imminent changes to be expected in US monetary policy. But what about the outlook for gold? Is the metal going to rise further or resume lower as yields and dollar potentially rebound?

The Fed suggest that it will likely be "some time" until substantial further progress is made towards the maximum-employment and price-stability goals. This means that for now, the stimulus programme of buying assets worth $120 billion per month will continue. 
 
However, as I mentioned earlier in THIS report, the Fed may be forced to tighten its belt faster than it wants to given the potential for inflation to overshoot. The faster pace of vaccinations in the US combined with fiscal and monetary support means the Fed may want to ease off the gas sooner than expected as the economy potentially heats up faster. They wouldn’t want to overcook inflation and then apply the brakes harshly.
 
Against this backdrop, bond yields will likely remain supported, putting a floor under the dollar and a ceiling over yields. This should limit investment demand for gold as rising yields increases the opportunity cost of holding the non-interest-bearing precious metal.
 
However, with a recovering world economy, jewellery demand should rise as too should demand for gold as a form of inflation hedge.
 
So, the loner-term outlook remains mixed for gold, which means we could see the metal trade inside large ranges than trend in a particular direction.
 
With gold unable to hold any of its recent recovery attempts and given the uptrend for yields, I am not too bullish on gold in the short-term outlook.  Indeed, if the 10-year US bond yields rebound from THIS key support area, then the dollar could resume higher and gold lower:

US 10y bond yieldsSource: ThinkMarkets and TradingView.com
 
At the time of writing, gold was up more than 1% and rising towards key resistance in the $1760-65 range. This area was previously support and could now turn into resistance.

goldSource: ThinkMarkets and TradingView.com

Support is seen at $1745, the base of today’s breakout above recent resistance range. If this level fails to hold on re-test in the coming days, then gold could resume lower and head below the double bottom low of $1676/77 it has recently formed.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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