Gold (XAU/USD) Analysis and Chart

• Gold prices have ticked up despite higher Treasury yields
• They remain heavy though after three days of declines
• The $1900 level is in play and its fate will probably be key

Gold Prices recovered a little on Thursday following three days of falls this week, but the market remains beset by relentless rises in high-quality bond yields, notably in the United States but also elsewhere, as markets move to price in higher interest rates for longer.

The previous session saw the release of minutes from the US Federal Reserve’s July monetary policy meeting at which ‘most participants’ reportedly still saw considerable upside risks to inflation, of the order which may warrant more interest rate hikes.

The minutes helped ten-year Treasury yields test the 4.3% level, their highest for more than fifteen years.

Gold tends to do much better in times of low or negative interest rates when small yields on offer elsewhere serve to gloss over the complete lack of yield inherent in holding the metal. Those days are clearly long gone, and the jury remains out as to if, or when, they might come back.

Moreover, the stronger Dollar those yields inevitably bring also hits gold, making gold products denominated in the US currency more expensive for buyers elsewhere.

Given that it’s perhaps unsurprising that gold prices should have been fading consistently for the past three months. And there wasn’t any data respite for them on Thursday. US jobless claims fell last week, underlining the tightness in the labor market which so concerns the Fed. Meanwhile, the Philadelphia Federal Reserve’s manufacturing index surged to its first positive reading since August last year.

With those two releases, the main economic events of this week are now behind us, with little left on the data docket likely to offer gold much in the way of trading opportunities. There are inflation snapshots from both Japan and the Eurozone on tap Friday, but they’re not likely to produce long-lasting moves.

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Gold Prices Technical Analysis

Gold Prices Daily Chart Compiled Using TradingView

While the fundamental picture looks likely to remain gloomy for the metal, bulls seem keen to put up a fight before they’ll abandon the psychologically important $1900/ounce level to which they’re currently clinging, having recovered it in Thursday’s early trade.

It will be instructive to see whether they can hold that level into the week’s end. There’s a band of support between the 200-day moving average at $1,904 and June’s low at $1,893, which seems to be holding sellers in check now.

However prices have broken below their uptrend line from last November with their slide below $1922.52 back on August 9 and are now falling toward the base of the uptrend channel in place from May 4’s fourteen-month highs.

That provides support at $1844.69, ahead of March 9’s low at $1811.50.

The current setup hardly looks likely to produce a durable price rise, and in the short term at least gains seem likely to be extremely fragile. Still, there could be a sense in which prices have suffered enough for the short term, with the Relative Strength Index just a few ticks above the seriously oversold 30 level, at or about 34.

IG Client Sentiment shows that 78% of traders are bullish at current levels.

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–By David Cottle for DailyFX