Gold Technical Medium-Term Uptrend Damaged, Spooked by Rapid Rise in 10-Year US T.
Gold Technical Medium-Term Uptrend Damaged, Spooked by Rapid Rise in 10-Year US T.
After the outcome of the US presidential election on 6 November, market participants continued to focus on the Trump Trade that triggered a significant rally in the US dollar against the major and emerging currencies.
The US Dollar Index rose sharply, broke above a major resistance zone of 105.50/106.37, and hit a year-high high on Wednesday, 13 November.
All in all, it has recorded a gain of 7% from its 27 September low to Thursday, 14 November current intraday value of 106.96 at this time of the writing.
The current persistent strength seen in the US dollar has been primarily attributed to a rapid rise in the 10-year US Treasury yield despite the US Federal Reserve has just started its interest rate cut cycle in September.
The bond vigilantes have likely started to price in a possible scenario that the current Fed’s interest rate cut cycle is likely to be a short and shallow one where the Fed may only cut once or twice next year in 2025 due to the risk of a resurgence of higher inflationary expectations caused by Trump’s proposed policies of deep corporate tax cuts and higher trade tariffs on China and the rest of the world’s exports to the US.
The 10-year US Treasury yield has rallied by 85 basis points since its 17 September low and may be poised for a potential major bullish breakout above 4.49% that can potentially eye the major resistance of 5.20% next (see Fig 1).
If such a bullish scenario arises on the 10-year US Treasury yield, market participants may choose to focus their attention on the negative short-term aspect of Gold caused by a strong US dollar and a further rise in the 10-year US Treasury yield that increases the opportunity costs of holding Gold as it is a non-fixed income asset.
The longer-term positive aspect of Gold as a hedge and safe haven asset play to counter a potential wider US federal budget deficit caused by Trump’s “generous” corporate tax cuts policy, in turn, a catalyst for an erosion of confidence in the demand for US Treasuries has now taken a backseat.
The Bearish Break of US$2,590 Sees Further Potential Weakness in Gold (Cay)
Source: Investing.com
