GOLD PRICE OUTLOOK:
- Gold prices risk forming a “Double Top” pattern after failing to breach the $1,835 resistance
- Traders are waiting for Friday’s US nonfarm payrolls report for clues about labor market conditions and tapering stimulus
- Real yields fell to all-time lows, cushioning the downside potential for bullion
Gold – Daily Chart
Gold prices pulled back to $1,812 during Monday’s APAC session as traders awaited the US nonfarm payrolls report this week. The DXY US Dollar Index rebounded to 92.09, exerting downward pressure on the yellow metal. Technically, gold prices may be forming a “Double Top” pattern after failing to breach the 1,835 resistance for a second try. Immediate support levels can be found at 1,790 (neckline) and then 1,784 – the 61.8% Fibonacci retracement. The MACD indicator is flattening, suggesting that bullish momentum may be fading.
Minneapolis Fed President Neel Kashkari said Sunday that the Delta variant could keep some Americans from looking for a job, potentially harming the labor market recovery. This puts Friday’s nonfarm payrolls report under the spotlight, where a 900k rise is expected. A big miss may strengthen the Fed’s dovish stance and weaken the US Dollar, buoying gold prices.
Viral resurgence around the world also puts a question mark over the global economic recovery, with many countries re-imposing stricter social-distancing measures amid the rapid spread of the Delta variant strain. This may delay other central banks’ plan to scale back pandemic-era stimulus efforts, brightening the prospects for precious metals.
New Covid-19 Cases around the World
Growth concerns weighed on Treasury yields, sending real yields (nominal-inflation) to all-time lows. The rate on 10-year inflation-indexed securities fell to -1.18% on Friday and is little changed today (chart below). Falling yields may serve to cushion the downside for precious metals as it means that opportunity cost of holding the non-interest-bearing metal is lower.
Gold Price vs. Real Yields
Source: Bloomberg, DailyFX
— Written by Margaret Yang, Strategist for DailyFX.com
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