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Gold rebounds amid soft dollar as yields ease

Fawad Razaqzada Fawad Razaqzada 22/02/2021
Gold rebounds amid soft dollar as yields ease Gold rebounds amid soft dollar as yields ease
Gold rebounds amid soft dollar as yields ease Fawad Razaqzada
Gold and silver have extended their advance from Friday when both metals closed the session positively to end their recent poor run. The turnaround comes as the dollar continues to be sold, with the Dollar Index now down for the third consecutive day. Commodity dollars continue to outperform amid ongoing reflationary trade, although we have also seen the likes of the yen and euro push higher today. Yields have also eased back down today, with German 10-year bunds turning negative after rising earlier to their best levels since early June. In the US, yields on 10-year Treasury notes dipped to 1.336% after rising as much as 1.394% earlier – a level last seen on 25 February last year.

It is obvious central banks are starting to get worried about the pickup in yields with investors expecting the ongoing government and central bank support to turbo-charge the economic recovery when national lockdowns end. ECB President Christine Lagarde, for example, today said the central bank is closely monitoring longer-term nominal bond yields. The Reserve Bank of New Zealand will likely stress the need for ongoing monetary support when it is widely expected to leave rates at 0.25% on Wednesday. Even the US Federal Reserve has reminded us that QE will not be ending any time soon. Although the economic recovery has been better than expected in some regions of the world, these central banks will be mindful of the many risks ahead as the coronavirus pandemic continues to rage globally. So, the major central banks will probably not want get ahead of the curve and risk pushing up the value of their respective currencies by signalling a tightening cycle prematurely.  Indeed, if anything, with many foreign currencies already having risen so rapidly, they will be keen to verbally talk down their currencies.
 
Against this backdrop, I can’t see yields go significantly higher from current levels. This should allow gold and silver to remain supported, or for the downside to be limited.
 
Still, despite today’s rebound and the recent troubles, gold remains stuck inside a long-term consolidation pattern, with the key support range coming in between $1765 to $1800 as can be seen from this weekly chart:

gold weeklySource: ThinkMarkets and TradingView.com

Prices need to climb above the resistance trend of the above falling wedge pattern to tilt the bias back in the favour of the bulls.

On the daily time frame, we can see that gold was testing a key area of potential resistance at the time of writing, between 1810ish and 1816ish:

goldSource: ThinkMarkets and TradingView.com

If the sellers are still in charge, this is about the area where we could see renewed weakness from.

The key line in the sand is at $1855 – the most recent high. If and when this level breaks, then that is when we will have formed our first key reversal sign: a higher high. Until such a condition is met, the bulls should proceed with extra care as this could turn out to be another short-lived rally.
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.
 
 
 

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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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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