Gold price flattens as US Dollar steadies and GBP flips ahead of BoE

Gold, XAU/USD, US Dollar, GC1, Bond Yields, BoE, PBOC, Fed, AUD – focused topics

  • Gold prices softened in the face of rising government bond yields
  • PBOC tilted policy and now BoE moves into focus after UK CPI data
  • The US dollar could be the key for XAU/USD in this eventful week

The gold price struggled on Tuesday with the US dollar rallying somewhat despite the holiday in the US on Monday.

While the major Wall Street indices were closed, the cash market for government bonds is open and yields managed to rise across the curve.

The higher yields seemed to support the “big dollar”, but yields on most other developed market government bonds also received a boost.

GBP/USD eased today, although the yield on 2-year UK government bonds (Gilts) reached the 5% mark for the first time since 2008. The 5-year and 10-year parts of the Gilts curve are also heading towards the highs of October last year.

The moves come ahead of CPI data tomorrow and the Bank of England on Thursday. The interest rate market is expecting a hike in the official policy rate.

An exception in the government bond market today was Japanese Government Bonds (JGB). Yields there are unmoved, while USD/JPY is heading for a 7-month high.

It is possible that Bank of Japan officials will start chattering should the Japanese currency depreciate further.

The outcome of US Secretary of State Antony Blinken’s visit to China, which ended yesterday, was widely seen as progressive, although there were no concrete breakthroughs.

The People’s Bank of China (PBOC) cut the key interest rate on 1- and 5-year loans by 10 basis points to 3.55% and 4.20% respectively.

While the cut in the one-year rate was in line with market expectations, one had hoped for a 15-basis point cut in the five-year rate, where Chinese mortgages are typically priced more favorably.

Crude oil prices have softened today, with the WTI futures contract at US$71, while the Brent contract has dipped below US$76. The latest prices can be found here.

The Aussie dollar saw the biggest losses on Tuesday after the minutes of the RBA board meeting were released today. These show that members were not as convinced about a 25 basis point rate hike as markets had assumed a fortnight ago.

The RBA statement printed immediately after the rate decision appeared to be slightly more wrong than today’s minutes. Australia’s ASX 200 saw some gains on the news.

In the US, some housing data is expected after the return from the holidays. The full calendar can be seen here.

Fed Chair Jerome Powell will present his semi-annual monetary policy report to Congress on Wednesday.

GC1 (GOLD FRONT FUTURES CONTRACT) TECHNICAL ANALYSIS

The recent collapse of the gold price below an ascending trend line was not a convincing breakout. Support levels in the 1936-1945 range have held so far and may continue to do so.

Last Thursday’s low at 1936 has formed a potential double bottom coinciding with an earlier low. The potential double bottom could be confirmed if it rises above the neckline at 2000.

The downtrend was below the 100-day simple moving average (SMA), but the daily close was back above it.

This could indicate that the recent bear market has been rejected for now.

A clean break below this area could see a downtrend develop and the next support zone of note could be at the next double bottom of 1811 and 1813.

If gold rises above the 55-day SMA, which is currently just below 2000, it will be above all daily SMAs for the period, which could indicate that bullish momentum is building.

If it breaks above 2000, it could be heading for a potential resistance zone ahead of the all-time high.

The early May high of 2085 surpassed the March 2022 high of 2079, but failed to break above the all-time high of 2089. This failure to establish a new path upwards has led to a triple top, which is an extension of a double top formation.

This has created a potential resistance zone in the area between 2080 and 2090, but a breakout above these levels could indicate further upside.

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