Gold (XAU/USD) daily chart
The sharp move higher in Treasury yields and the dollar yesterday resulted in a steep drop in gold. Of note, the fall took out the January low as well as the $2,000 mark. But at least for the time being, buyers are able to hang on as the 100-day moving average (red line) at $1,989.90 is not firmly broken just yet.
As mentioned earlier, the next leg higher in the dollar might be tougher to come by. And gold is part of that consideration as well, amid its correlation with bond yields for the most part. As such, it might require 10-year Treasury yields breaking its own 100-day moving average of 4.342% to really move the needle lower in gold.
That said, there are still some critical support layers that buyers can rely on even if we do see a continued drop this week. The December lows around $1,973-75 will be the first before the 200-day moving average (blue line) at around $1,965.54. Thereafter, the November low of $1,949 will come into play.
Gold is stuttering so far to start the new year. However, I still retain a more bullish conviction on the precious metal in the long-term. The structural view remains that gold is likely to shine once central bank rate cuts start being realised. It is a bet on the disinflation narrative essentially and I’d argue that right now, we’re just in a pit stop.
But for trading this week, the downside might not be done just yet. There is still US retail sales and PPI figures still to come later in the week. Those might be catalysts for traders to react further following the CPI yesterday.