Gold prices consolidated at around $1,808 as the US Dollar strengthened, yields gained
The spread of the Delta variant dented global growth prospects, alleviating tapering fears
Gold prices have likely broken an “Ascending Channel” and opened the door for further losses
Gold prices traded modestly lower during Wednesdays APAC session amid a stronger US Dollar and higher yields. The DXY US Dollar Index surpassed the 93.00 mark, hitting the highest level seen in more than 3 months as traders pared back their bets on the Fed rate hikes. This came against the backdrop of the rapid spread of Delta variant of the Covid-19 virus around the globe, threatening lockdowns and tightened travel restrictions.
Singapore is the latest country that returned to lockdowns due to viral resurgence. The government suspended dining-in and restricted social gathering activity just two weeks after relaxing the rules, due to a few new clusters found. The city state has to return to lockdowns even though it has the highest vaccination rate across Asia. Over 70% of Singaporean people have received at least one dose of Covid-19 vaccine as of July 19th. This points to a bumpy road to recovery for other countries, which have far lower vaccination rates compared to Singapore (chart below).
A tempered economic outlook suggests that ultra-loose monetary policy may stay for a longer period of time. This may provide a supportive narrative for precious metals to stay afloat.
Separately, Treasury yields rebounded from 7-month lows, exerting downward pressure on bullion. Real yields (nominal-inflation), as represented by the rate on 10-year inflation-indexed securities, climbed 3bps overnight to -1.05% from -1.08% (chart below). Real yields and gold prices historically exhibited a negative relationship, as rising yields mean that the opportunity cost of holding the non-interest-bearing metal is higher.
Gold Price Technical Analysis
Technically, gold prices have likely broken an “Ascending Channel” and entered a technical pullback (chart below). An immediate resistance level can be found at $1,835, whereas immediate supports can be found at $1,810 and then $1,796. The MACD indicator remains below the neutral midpoint, suggesting that bullish momentum may be weak.
Gold – Daily Chart