Gold rebounds as yields turn lower
Gold and silver both turned positive after bond yields gave up their earlier gains. The US dollar also turned lower against most currencies. Investors are looking forward to key US data releases this week. On the evidence of today’s price action, they must be anticipating weaker data. If that’s the case, then it would further boost the “peak interest rates” narrative and potentially support gold and silver prices.
Until today’s bullish-looking price action, the start of the month of November has been frustrating for precious metals bulls. Gold and silver have both struggled to hold onto any gains, following gold's notable 7% increase in October and silver's comparatively modest 3% rise. Gold's upward trajectory last month was primarily attributed to the surge in demand for safe-haven assets, prompted by the escalation of the Middle East conflict, leading investors to shift away from riskier investments. Despite a surge in US bond yields to their highest point since 2007, gold managed to rally. However, although bond yields have since sharply decreased at the beginning of this month, this has not yet positively impacted gold prices. But today’s price action suggests the inverse relationship between gold and yields are back.
Up until today, investors have favoured US stocks and bonds over gold due to the latter's lack of dividends or interest and the associated costs of storage. Moreover, with global signs of peaking inflation and gold prices hovering close to their all-time highs, some investors have been hesitant to purchase gold at recent levels, opting to wait for a more substantial price decline before making a move. Nevertheless, with the decline in yields, potential buyers are keeping an eye out for opportunities to make a move. Today’s recovery from a key support area around $1930-$1940 could be a sign of a bullish reversal. Let’s see if the precious metal will be able to kick on from here.
Later this week, we have some important US data to provide direction, including retail sales and more importantly, CPI inflation with the latter due for publication tomorrow. For two consecutive months now, US inflation has surprised to the upside. In September, annual CPI remained unchanged at 3.7%, defying market expectations of a slight decrease following an even larger surprise the month before. But if we see a larger-than-expected drop in CPI this time, then it will further boost the “peak interest rates” narrative and potentially hurt the dollar and underpin gold.
It is also important to monitor economic indicators from China, the world’s largest gold consumer. As well as industrial production we will have retail sales data to look forward to in the early hours of Wednesday from the world’s second largest economy. Recent Chinese macro pointers have shown some improvement. We will need to see more evidence of a turnaround for yuan and local stocks to recover more meaningfully. Gold should also benefit from any positive surprise in Chinese data.
Therefore, it's crucial to remain vigilant for a potential bullish reversal as both gold and silver approach critical support levels. In my opinion, silver exhibits greater potential for further upside compared to gold at this juncture, given the fact that the gold-silver ratio has now reached a key resistance zone circa 88.00.
That said, gold, too, could be on the verge of a rebound, as it tests a key support area here…
Gold technical analysis
As per the highlighted region on my chart, gold is now testing a pivotal area between $1931 and $1947. This particular price range had previously exhibited a tendency to act as resistance during multiple instances observed between the months of August and September.
Following the recent breakthrough above this critical range, the bulls would feel it is imperative for gold to find renewed buying momentum from within this specific zone. If they turn up here, we may see a renewed push towards $2000 again. So far, however, there were no signs of the bulls as I wrote this.
Adding further significance to the above range is the 200-day average, which also comes into play here. This is thereby lending additional weight to the importance of this critical area.
Therefore, a potential breach below that $1931-$1947 area, especially if sustained on a daily closing basis, would signify a bearish turn of events, warranting a vigilant assessment of the market's trajectory for the bulls. But we will cross that bridge if we get there. For now, the onus is on the bulls - let’s see if they will show up here.
-- Written by Fawad Razaqzada, Market Analyst at FOREX.com
Until today’s bullish-looking price action, the start of the month of November has been frustrating for precious metals bulls. Gold and silver have both struggled to hold onto any gains, following gold's notable 7% increase in October and silver's comparatively modest 3% rise. Gold's upward trajectory last month was primarily attributed to the surge in demand for safe-haven assets, prompted by the escalation of the Middle East conflict, leading investors to shift away from riskier investments. Despite a surge in US bond yields to their highest point since 2007, gold managed to rally. However, although bond yields have since sharply decreased at the beginning of this month, this has not yet positively impacted gold prices. But today’s price action suggests the inverse relationship between gold and yields are back.
Up until today, investors have favoured US stocks and bonds over gold due to the latter's lack of dividends or interest and the associated costs of storage. Moreover, with global signs of peaking inflation and gold prices hovering close to their all-time highs, some investors have been hesitant to purchase gold at recent levels, opting to wait for a more substantial price decline before making a move. Nevertheless, with the decline in yields, potential buyers are keeping an eye out for opportunities to make a move. Today’s recovery from a key support area around $1930-$1940 could be a sign of a bullish reversal. Let’s see if the precious metal will be able to kick on from here.
Later this week, we have some important US data to provide direction, including retail sales and more importantly, CPI inflation with the latter due for publication tomorrow. For two consecutive months now, US inflation has surprised to the upside. In September, annual CPI remained unchanged at 3.7%, defying market expectations of a slight decrease following an even larger surprise the month before. But if we see a larger-than-expected drop in CPI this time, then it will further boost the “peak interest rates” narrative and potentially hurt the dollar and underpin gold.
It is also important to monitor economic indicators from China, the world’s largest gold consumer. As well as industrial production we will have retail sales data to look forward to in the early hours of Wednesday from the world’s second largest economy. Recent Chinese macro pointers have shown some improvement. We will need to see more evidence of a turnaround for yuan and local stocks to recover more meaningfully. Gold should also benefit from any positive surprise in Chinese data.
Therefore, it's crucial to remain vigilant for a potential bullish reversal as both gold and silver approach critical support levels. In my opinion, silver exhibits greater potential for further upside compared to gold at this juncture, given the fact that the gold-silver ratio has now reached a key resistance zone circa 88.00.
That said, gold, too, could be on the verge of a rebound, as it tests a key support area here…
Gold technical analysis
As per the highlighted region on my chart, gold is now testing a pivotal area between $1931 and $1947. This particular price range had previously exhibited a tendency to act as resistance during multiple instances observed between the months of August and September.
Following the recent breakthrough above this critical range, the bulls would feel it is imperative for gold to find renewed buying momentum from within this specific zone. If they turn up here, we may see a renewed push towards $2000 again. So far, however, there were no signs of the bulls as I wrote this.
Adding further significance to the above range is the 200-day average, which also comes into play here. This is thereby lending additional weight to the importance of this critical area.
Therefore, a potential breach below that $1931-$1947 area, especially if sustained on a daily closing basis, would signify a bearish turn of events, warranting a vigilant assessment of the market's trajectory for the bulls. But we will cross that bridge if we get there. For now, the onus is on the bulls - let’s see if they will show up here.
-- Written by Fawad Razaqzada, Market Analyst at FOREX.com
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