XAU/USD update - tracking yields?
Gold (XAU/USD) has seen the bullish momentum weaken in the past few days, but this is only normal given the magnitude of the move in recent days. A flight to safety rush saw investors pile into gold to help diversify their risks as the conflicts in the Middle East erupted. The momentum has held strong throughout the past two-and-a-half weeks but buyers have run into a bit of exhaustion in the rally as the precious metal was just shy of breaking the key psychological $2,000 level on Friday.
The candlesticks on the daily chart clearly show a pattern of indecision, suggesting that, despite the pullback, there is no real appetite from sellers to pile into XAU/USD. This is likely because of the continued demand for some safe haven coverage despite the conflict having remained contained to the region so far. What is interesting is the fact that the natural inverse relationship between gold and yields has been ignored since the demand for gold as a safe haven and now seem to be tracking each other. Yields, which remain supported by strong economic data in the US and the view that the Fed will hold rates elevated for longer, have reached 16-yeah highs in recent weeks, with the 10-year yield briefly touching the 5% mark last week. But gold, a non-yielding asset, has not shied away despite the continued move higher in yields. Both are now trying to find a footing after the pullbacks. With the upcoming US GDP and PCE releases gearing up for the FOMC meeting next Wednesday, it’s going to be interesting to see how this relationship evolves – whether it continues to ignore fundamentals or gold corrects lower if yields remain supported.
The candlesticks on the daily chart clearly show a pattern of indecision, suggesting that, despite the pullback, there is no real appetite from sellers to pile into XAU/USD. This is likely because of the continued demand for some safe haven coverage despite the conflict having remained contained to the region so far. What is interesting is the fact that the natural inverse relationship between gold and yields has been ignored since the demand for gold as a safe haven and now seem to be tracking each other. Yields, which remain supported by strong economic data in the US and the view that the Fed will hold rates elevated for longer, have reached 16-yeah highs in recent weeks, with the 10-year yield briefly touching the 5% mark last week. But gold, a non-yielding asset, has not shied away despite the continued move higher in yields. Both are now trying to find a footing after the pullbacks. With the upcoming US GDP and PCE releases gearing up for the FOMC meeting next Wednesday, it’s going to be interesting to see how this relationship evolves – whether it continues to ignore fundamentals or gold corrects lower if yields remain supported.
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