Gold Price Analysis: US yields sky-rocket, the bears go back to the drawing board

  • Gold prices are stabilising as markets seek to make sense of a major market event in US yields. 
  • The US dollar rallies as US yields short higher, raising prospects of Fed intervention. 

Gold prices have dropped to a fresh low of $1,765 and have traded over 2% lower on the day so far.

The US yields have sky-rocketed, raising the prospects of the Federal Reserve needing to step into the bond market with yield curve control, (YCC).

The markets are reacting to a catastrophic tailing in the 7-year auction with the 7Y pricing at 1.195% equating to a 4.1bps tail to the 1.151% when issued.

The bid to cover dropped from 2.305 to 2.045 which was the lowest on record. The recent average has been 2.35.

The Indirects were also a shocking distance from the norm, falling from 64.10% to just 38.06%, which was the lowest since 2014.

The end result has seen the 10-year yield rally almost 4%.

The bond market has been the focus and if people were not paying attention, they will be now. 

Headlines about this event and what the Fed intends to do about it will be the driving force for the US dollar and gold for the foreseeable future.

The US dollar has spiked on the event and is taking on the 90 areas again in the DXY.

The price of gold, however, can also benefit, if real yields are seen to be collapsing.

The shiny metal will also pick up a safe-haven bid in the event that confidence in the markets over an orderly recovery in the US economy is slammed.

''While gold has managed to trade firm against the rise in rates, this can still be attributed to safe-haven appetite associated with anxiety over equity valuations, given the challenge to the 2020 mantra that valuations are supported by 'low yields,'' analysts at TD Securities said in a note earlier in the day before the auction. 

In line with that analysis, the stock market has already seen big tech shares tumble on the day, dragging the NASDAQ down by more than 3% today.

Gold technical analysis

Meanwhile, the move in gold has been two-way over the auction but is well placed for an upside correction into liquidity around 1790 before the next bearish impulse towards 1754, a target illustrated in prior analysis as follows:

Prior analysis, daily chart

The market at this juncture would now be expected to move deeper into test $1,790. 

In doing so, the focus will be on a downside extension towards $1,750 in a continuation of the daily downtrend and bearish late summer 2020 cycle:

Live market, daily chart

Meanwhile, as the price continues to deteriorate, the 4-hour chart is correcting which brings the $1,790 resistance back into the picture:

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