Will the gold rally extend?

The US equities closed Thursday’s session in the negative following a choppy trading session, as investors’ hearts pounded between buying the dip, or selling further on recession fear. The latter gained the upper hand; the S&P500 lost 0.58%, while Nasdaq slid 0.44%. 

The S&P500 is a stone’s throw from stepping into a bear market, and if the index closes the week lower, it would be the longest losing streak since the dotcom crisis. And there is nothing Jerome Powell will do to save the day. 

Could the gold rally extend? 

The US 10-year yield declined yesterday, and the sharp retreat in the US yields gave a boost to gold. The yellow metal jumped $25 dollar in a single move, reviving the bulls’ hopes to see the rally extend higher. Is it possible?  

Well, the falling yields have been the major trigger of the gold rebound yesterday, therefore the positive momentum could remain short lived, as the medium-term trend for the US yields remains comfortably positive on the back of prospects of higher interest rates in the US. The Federal Reserve (Fed) declared war against inflation, and it will raise the interest rates. The higher rates will have a straight positive impact on the yields.  

From a technical perspective, gold is at an important crossroads. It is now testing the 200-DMA resistance, which also coincides with the negative correction band top, building since mid-April. The actual levels are interesting for topsellers, who bet on further positive pressure on the yields, which would continue pressuring gold lower.  

But if the 200-DMA resistance is broken to the upside, we could see the rally persist toward the $1880/1900 range. And the Russian shock on gold supply could support that move.  

I still maintain my bearish outlook for gold in the medium to long run based on the expectation of higher yields, as the Fed won’t get rid of inflation fast enough.  

The dollar must ease to let majors gain field on their own reasons

Yesterday’s retreat in the US yields pulled the dollar lower. The US dollar index eased 103 mark, and the majors gained against a broadly softer greenback.  

The EURUSD flirted with the 1.06 mark. as Cable had a quick rebound above the 1.25 mark.  

But the outlook for majors broadly depends on the dollar’s performance. We must see a sustained downside correction in the US dollar to let the euro and the sterling have a sustained positive correction.  

As per the dollar, only a slowdown in the equity selloff could soften the dollar appetite and let it lose some field against its major peers. As a result, the US yields, and the dynamic in the equity markets are what mostly determine the value of the pound and the single currency against the dollar.  

If we could get rid of the dollar skew, the euro could start trading on its own reasons, and the euro traders could finally bring in the expectations that the European Central Bank (ECB) would raise the rates by July to fight the rising European inflation - which would rationally lead to some upside correction in the euro.