Gold recovers from over 2-month low as Treasury yields retreat
· old prices inched up on Thursday, recovering from a more than two-month low hit in the previous session as U.S. Treasury yields retreated, although a stronger dollar kept bullion’s gains in check.
· Fundamentals
· Spot gold was up 0.1% at $1,777.06 per ounce by 0012 GMT, having dropped to its lowest since Nov. 30 at $1,768.60 on Wednesday. U.S. gold futures rose 0.3% to $1,777.40.
· Benchmark 10-year Treasury yields retreated from near one-year peak on Wednesday. Higher yields increase the opportunity cost of holding the non-yielding bullion.
· The dollar climbed to a more than one week peak on Wednesday against rivals, making gold expensive for holders of other currencies.
· U.S. retail sales rebounded sharply in January and manufacturing activity rose, while U.S. producer prices increased by the most since 2009, suggesting inflation was starting to creep up.
· Gold is often viewed as a hedge against inflation.
· Federal Reserve officials last month debated how to lay the groundwork for the public to accept higher inflation, minutes of the U.S. central bank’s Jan. 26 to 27 policy meeting showed.
· U.S. President Joe Biden told 10 top union leaders on Wednesday that his $1.9 trillion coronavirus relief plan and a separate measure to modernize U.S. infrastructure would boost the U.S. economy and create millions of jobs.
· A laboratory study suggests that the South African variant of the coronavirus may reduce antibody protection from the Pfizer Inc/BioNTech SE vaccine by two-thirds, and it is not clear if the shot will be effective against the mutation.
· Gold Price Forecast: Downside still compelling for XAU/USD, $1765 support remains at risk
Gold (XAU/USD) tumbled to the lowest levels since November 30 at $1770 after a big beat on the US Retail Sales dealt a blow to the non-yielding gold. The American consumer spending jumped by 5.3% in January, beating +1.0% expectations and triggered a sell-off in the US bonds amid further signs of strengthening US economic recovery. The decline in the US Treasury yields ensued, lifting up the demand for the greenback across the board. The US stimulus expectations also continue to offer support to the US rates, ramping up the reflation trade.
In Thursday’s trading so far, gold is consolidating its recovery from multi-month lows, as investors assess the implications of the rising Treasury yields on equity valuations and economic growth prospects. Also, conflicting covid vaccine reports from Pfizer and Moderna, in the wake of its efficacy against the South African strain, keep the downside cushioned in the metal. If the advance in the Treasury yields resumes, it could once again fuel a fresh sell-off in gold prices. Such a move depends on the US weekly jobless claims and the sentiment on global markets.
As observed in the daily chart, the gold price has bounced-off a critical horizontal trendline (orange) support at $1765 on Wednesday.
Unless the XAU/USD bulls take out Wednesday’s high at $1796, the bearish bias remains intact. Further up, the previous month low of $1803 could be challenged.
The 14-day Relative Strength Index (RSI) has recovered from lower levels but remains below the midline, suggesting that there is more scope to the downside.
A breach of the abovementioned key support could trigger a sharp drop towards June 2020 lows of around $1720.
· Silver eased 0.1% to $27.33 an ounce. Platinum gained 1.4% to $1,271.15 and palladium added 0.2% to $2,376.76.
Reference: FXStreet, CNBC, Reuters
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