Gold price explodes higher on falling yields and Ukraine woes. Where to buy XAU/USD?
GOLD, XAU/USD, US DOLLAR (DXY), FED, UKRAINE, YIELDS – Talking Points
- Gold soars as markets fret over developments in Ukraine
- Fed rate hike expectations fluctuate amid conflicting statements from officials
- Falling yields and rising investment risks boosted gold. Can XAU/USD continue?
Gold soared on Friday as markets erupted following Thursday’s record U.S. CPI reading and escalating geopolitical tensions around the Ukrainian border.
The 10-year U.S. Treasury is yielding around 1.95%, significantly below Friday’s high of 2.06%. The Treasury curve is also recording lower returns.
Government bonds around the world have been bought as investors rush into safer securities, driving yields lower
This has seen real yields push even further into negative territory, with US 10-year real yields now at -0.48%, lower than the -0.37% seen on Friday. Real returns are calculated by subtracting the market price inflation rate for the given tenure from the nominal return.
This supports gold prices as alternatives to the precious metal become less attractive.
On Sunday, US time, Mary Daly, Chairman of the Federal Reserve Bank of San Francisco reiterated its relatively dovish stance on impending rate hikes, helping yields fall.
His comments contrasted sharply with those of St. Louis Fed Chairman James Bullard Friday, where he called for 100 basis point hikes at the next 3 FOMC meetings.
The White House announced on Friday that Russia could invade Ukraine at any time, sending markets spiraling. Risky assets were liquidated and safe havens sought. Gold rallied as the US dollar rose.
100,000 troops may seem like a lot to amass on the border, but some military strategists point out that’s not enough to invade, conquer and occupy a country the size of Ukraine.
This would be possible if the invaded population were sympathetic to the cause, although the broadcast of pro-Russian material was cut off. Strategists point out that this is one of the goals of the rhetoric of Western nations.
Apart from any human cost of life, the economic cost of a war in the region will be detrimental to all parties involved. US intelligence agencies are reported to believe that an additional 75,000 troops are planned.
Whether the situation will deteriorate further remains to be seen.
If tensions continue to escalate, this could be supportive of further advances for the yellow metal.
GOLD TECHNICAL ANALYSIS
Gold rejected a move below an ascending trend line and resumed trading mostly in the short, medium and long term simple moving averages (SMA).
Downward press held above 1778.50 previous low to 1780.36 low and these levels may continue to provide support.
Closer, support could also be the pivot points at 1853.83, 1847.94, 1831.65, 1829.68 and 1805.78.
A bullish triple moving average (TMA) formation requires price to be above the short-term SMA, the latter above the medium-term SMA, and the medium-term SMA above the long-term SMA. All SMAs should also have a positive gradient.
With the 10-day SMA crossing the 21-day SMA, the conditions are in place for a bullish TMA. By using 3 SMA on the board, the requirements of a TMA will be fulfilled. It should be noted, however, that past performance is not indicative of future results.
Resistance may be at the November high of 1877.15. Trading above this level will be the highest since June of last year.
Graphic vscreated in TradingView
— Written by Daniel McCarthy, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter