Daily Market Recap - GOLD Maintains upward momentum as long rates rebound

The price of gold hit a nearly two-month high of $1,790 on Monday before retreating to $1,770 as U.S. long-term rates rebounded. Gold is now building on last weeks gains by climbing up 0.47 percent late in the session on Tuesday.

The precious metal continues to be driven mainly by the evolution of long-term bond yields. This correlation is explained by the fact that when real bond yields decline, the attractiveness of bonds deteriorates, which leads some investors to increase their exposure to gold.

The evolution of gold will therefore depend on the evolution of US long rates. Currently at 1.56% against a high of 1.745% at the beginning of the month, the evolution of bond yields will depend a lot on the reopening of the economies, but also on the infrastructure investment plan wanted by Joe Biden. Discussions between congressmen and the White House are still in the early stages, but the US President hopes to see this bill ratified by the end of May.

The economic impact of this investment plan will obviously be positive for growth, but also for inflation (given that construction is difficult to relocate), which should support bond yields, provided that the market has not already priced in this bill.

In any case, a prolonged decline in bond yields seems relatively unlikely in the current environment of accelerating vaccinations and positive economic surprises on the recovery. Therefore, if the rebound in gold continues, it should be fairly limited.

From a technical perspective, the outlook for gold has become bullish again since it broke above its resistance at $1755. The breach of this resistance has allowed gold to form a “double bottom” reversal pattern with a theoretical upside target of $1835.

(Chart Source: Tradingview 20.04.2021)

This bullish outlook would be invalidated if gold were to fall below the double bottom neckline. In this case, the short-term outlook would once again become aligned with the long-term outlook, which is still bearish as long as gold does not break out of the bearish channel in which it has been moving since last year.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.