– Waits on US Treasury market to fire up
Lagos — Gold bulls would have been frustrated last week at the rejection of the 25 November highs and the reversal lower off $2726 – but as the new trading week cranks up, calmer conditions are currently seen in trade today, with gold traders holding back on putting on new positioning (long or short) until the US Treasury market fires up.
With US 10-year real rates back above 2% and nominal US 10yr Treasury yields rising a punchy 24bp last week, gold will revert to taking its directional steer from moves in US 10-year Treasury yields, and notably if we were to see follow-through selling, and should traders increase conviction levels that an upside break of 4.50% is probable, then gold will likely head towards to the former range lows of $2613 and even the 100-day moving average at $2600, which has defined the bull trend all year.
Gold’s relationship with the USD and US Treasuries has waivered throughout 2024, but when yields rip higher as they did last week, it is often too much for gold players to ignore, and the need to cut back on long positioning increases greatly. With a deluge of tier 1 US data due out this week, the outcome of the data and Fed meeting will throw Treasuries around, subsequently gold traders will want to keep a close eye on any further rise in yields, but then so too will equity and FX traders.
*Chris Weston Head of Research at Pepperstone
