Gold, XAU/USD, Treasury Yields, US Dollar, Debt Ceiling, Fed, China PMI – Talking Points
- The gold price has reasserted itself as the US Dollar faces challenges
- Treasury yields have given up some of their gains this week as Fed moves into focus
- If the debt deal passes through Congress, will XAU/USD rally further?
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The gold price has found firmer footing this week with the US Dollar pausing in its recent bull run and Treasury yields easing after a push higher into the end of last month.
Commodity markets have been mixed with some industrial metals facing headwinds with global growth prospects being questioned after some underwhelming data this week.
For base metals, yesterday’s weak Chinese PMI numbers are of concern due to the large volume of raw materials it requires to fuel its economic expansion.
However, today we saw the Caixin PMI number improve to 50.9 from the 49.5 anticipated and previously. This PMI number is a survey of smaller Chinese companies with a narrower sample than the official PMI. All the latest economic data can be seen on the DailFX.com economic calendar here.
For gold and silver though, the rolling over of Treasury yields appears to have underpinned the precious metals.
Across most of the curve, US government bonds are back to yields that were last seen in early March when the regional banking crisis kicked off with the collapse of Silicon Valley Bank Financial.
The benchmark 2-year bond tapped out at 4.63% last Friday after having dipped to 3.66% earlier this month. It is now trading near 4.40% going into Thursday.
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In the days ahead the US debt ceiling deal is due to be passed through the US legislature in order to avoid a default. It passed through the House of Representatives late Wednesday Washington time and will now go to Congress for approval.
Assuming this is passed without incident, the focus for the market might return to speculation around the Federal Reserve and its monetary policy intentions going forward.
The commentary from several Fed speakers appears to be messaging for a pause at the June 14th Federal Open Market Committee (FOMC) meeting.
Overnight, Philadelphia Federal Reserve Bank President Patrick Harker and Fed Governor Philip Jefferson both intimated that the Fed should ‘skip’ a hike at the next gathering.
Interest rate markets see little chance of a hike in June but are scoping around an 80% probability of a 25 basis point lift at the July conclave.
The path for US interest rates is somewhat uncertain and the impact on the Treasury market might be more volatility. This could translate into choppy trading conditions for the US Dollar. In turn, gold may see movements dependent on these factors.
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GC1 (GOLD FRONT FUTURES CONTRACT) TECHNICAL ANALYSIS
Gold remains in an ascending trend channel that began in November last year and earlier this week it tested the lower bound of that channel, but the support area held.
The ascending trend line also coincided with two previous lows and the 100-day Simple Moving Average (SMA). This zone may continue to provide support, currently in the 1936 – 1945 area.
If these support levels are broken, a bearish run may evolve, and the next support zone of note could be at the Double Bottom of 1811 and 1813. The 200- and 260-day SMAs are currently just above these levels and may lend support.
The early May high of 2085 eclipsed the March 2022 peak of 2079 but was unable to overcome the all-time high of 2089. This failure to break new ground to the upside has created a Triple Top which is an extension of a Double Top formation.
This has set up a potential resistance zone in the 20280 – 2090 area but a snap above those levels may indicate evolving bullishness. The next level of resistance could be at the upper ascending trend channel line that is currently near 2160.
— Written by Daniel McCarthy, Strategist for DailyFX.com
Please contact Daniel via @DanMcCathyFX on Twitter