Gold: Higher Yields Weigh Heavily
Craig Erlam | Feb 25, 2021 11:55AM ET
Rising bond yields are bad news for gold, which is trending lower as borrowing costs continue to spike.
A strong global economic recovery comes at a cost and what we’re seeing in bond markets is indicative of investors belief that the recovery is going to be very powerful indeed and bring with it inflation. The Fed and others have sought to play down the inflation risks and while Fed ChairJerome Powell said all the right things in Congress this week, it’s made little difference as we’re seeing today.
With yields rising across the board, the greenback has not been the main beneficiary of this and, in fact, the dollar index has slipped below 90, which could be a worrying sign for it. But that’s not doing much to save gold , which is also falling today, down 1.5%.
The outlook is not looking too bright for the yellow metal and we’re now seeing it test some key support levels around $1,765. Unfortunately, it’s not lacking momentum so they may not prove to be an enormous stumbling block. And the yield run doesn’t appear to be slowing either.
In the longer run, the next big test for gold is $1,660. It traded between here and a $1,760 for much of the second quarter of last year. It may see some initial support around $1,740 and $1,700 as well.
While gold could rebound if central banks can arrest the rise we’re seeing in yields, it’s not looking that likely at the moment. We’re not in taper tantrum territory, so they may not feel they have to. They may view this as an acceptable move in response to a strong recovery environment.
Should it find some support sooner, then $1,850 remains the big test. A cluster of moving averages could make life difficult around that region. $1,800-1820 could also prove a challenging test.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.