GOLD : Waiting for Breakout

(Wed, 13 Jan 2021). Yesterday’s strong US treasury auction may have put a short-term top in US yields as US 10s pullback from a high of 1.18%. In turn, US real yields have also halted its climb, which has been among the key directional factors for the precious metal. Keep in mind, that gold and real yields are highly correlated (30-day correlation at -0.78), indicated by the graph below. Therefore, for a view on the near-term outlook for gold, it is important to watch the bond market. That said, there is also the USD side of the equation, which has also capped upside in gold, thus prices have consolidated at the low end of its recent range.

FED’S POWELL AND BRAINARD TO DOWNPLAY FED TAPER TALK

Market focus on Fed’s commentary has increased as of late following recent comments from Fed’s Bostic. The Atlanta Fed President noted last week that the Federal Reserve could begin to taper its QE purchases as soon as year on the back of a strong rebound in economic activity. However, while this may have contributed to the recent uptick in treasury yields, this view is not widely shared among other Fed officials with Mester stating that it is premature to change monetary policy stance. As it stands, there is very little justification to alter policy and with Brainard and Powell on tap to speak over the next 24hours, expect further push back on talk of QE tapering.

GOLD TECHNICAL OUTLOOK REMAINS WEAK

The short-term outlook for the precious metal remains soft, however, focus will remain on real yields for near-term direction. On the technical front, upside has been capped at 1860-65, while support resides at 1820-30. Above 1865, focus will turn to 1900, while a break below the 1820-30 support zone opens the door for a move below $1800.

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