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Gold could find support with yields dropping

Fawad Razaqzada Fawad Razaqzada 25/01/2021
Gold could find support with yields dropping Gold could find support with yields dropping
Gold could find support with yields dropping Fawad Razaqzada
Following today’s drop in equity prices, in part because of delays in vaccine rollout in Europe, yields on US 10-year bonds dropped 5% while German bund yields fell almost 7% and UK yields dropped even more. The risk-off tone from equity and bond markets helped to support the dollar, causing the likes of the ERU/USD and GBP/USD, as well as buck-denominated gold and silver, to drop. But with yields going lower, this has reduced some of the bearish bias on gold, which has been struggling for direction over the past few months. I therefore reckon gold could be about to stage a rebound.

The fact that global bond yields have fallen back, this reflects concerns that the pandemic won’t be over any time soon and that central banks will keep monetary policy loose for years to come. The renewed weakness in yields come after they had recently risen with bond market investors probably no longer expecting any further stimulus from major central banks. This makes some sense as the ongoing vaccine rollout means the pandemic and lockdowns can, hopefully, be declared over at some point later this year. We have also secured a Brexit deal while a massive European Union fiscal package is forthcoming. The need for the ECB, Fed and BoE to continue offering as much support is thus diminishing. However, to suggest bond yields will stage a sharp rally – or bond prices will sell-off sharply – is very premature. While yields can stabilise further, it is worth remembering that they sit near historically low levels and central banks will be keen to keep them low for a long time to come.

In other words, conditions remain ripe for gold and silver to remain supported. Meanwhile, the dollar could be kept under pressure as the likes of the euro and pound may be able to push further higher over time given the above reasons. As a result, the dollar index could struggle to sustain its recent rebound and this may support gold and silver further.

From a technical point of view, gold’s latest rebound off the 200-day average continues to suggest the long-term trend remains bullish and investors are happy to buy the dips. Thus, unless prices break below the 200-day average sharply, the path of least resistance remains to the upside.

goldSource: ThinkMarkets and TradingView.com
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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Mohammed Zidan
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Mohamed Zidan
Chief Market Strategist, Dubai

Mohamed Zidan is a chief market strategist in Dubai and CFA Level III candidate. He reports to London office and has more than eight years of experience focusing on Forex, Commodities, Indices and global economic developments as well as central bank policies and intermarket analysis. worked as FX Analyst, and Strategist in several different organizations and for various departments. He holds a bachelor’s degree from Cairo University in Egypt. Mohamed Zidan is a regular guest on several major TV networks such as; CNBC Arabia, Fran24 Arabic, Alarabiya , Dubai TV, Sama Dubai, Skynews Arabia, Saudi National News, and Egypt National news.

Zidan presents insight to the markets movements, holds open discussions and relays possibilities related to the world’s financial market and economies.

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Victor Golovtchenko
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Victor Golovtchenko has been analysing and trading foreign exchange markets since 2004, and is actively involved in the online media space since 2014. His tenure as a Senior Editor at a major brokerage industry news outlet was followed with a breakthrough into the financial news space with the brand new TradeStar website.

As an affectionate macro-focused analyst, he has an integrated framework to look at financial markets as a whole, identifying gaps between currencies, stocks, bonds, and other asset classes to get a core complete picture of the macroeconomic environment.

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Fawad Razaqzada
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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.
 
 

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Carl Capolingua
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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.
 
 
 

Mohammed Zidan
Mohamed Zidan
He has more than eight years of experience focusing on Forex, Commodities, Indices and global economic developments as well as central bank policies and intermarket analysis.
Victor Golovtchenko
Victor Golovtchenko
Victor Golovtchenko has been trading on the foreign exchange markets since 2004, and is actively involved in the online media space since 2014. His tenure as a Senior Editor follows his role with TradeStar.
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.

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