Gold Advances Slightly on Lower Yields

Gold and silver bars

Gold prices made some gains on Monday on lower U.S. Treasury yields. The benchmark 10-year yields plunged to a one-month low and boosted the demand for the yellow metal. But the stronger dollar capped the bullion’s gains. The greenback hovered near a 20-year high and made gold more expensive for investors using rival currencies.

Spot gold is currently trading at $1,807.60 per ounce as of 0901GMT.

City Index senior market analyst Matt Simpson commented that the decline in U.S. yield allows gold to rise in the near term. However, large speculators and managed funds have raised their short bets on the yellow metal. If the bullion falls below $1,800, Simpson predicts another bout of selling.

DaiyFX senior strategist Christopher Vecchio added that gold’s fundamental outlook continues to weaken. Nothing much has changed since the second-quarter forecast. For the third quarter, Vecchio sees two likely paths for the bullion. The first is sideways if inflation expectations remain higher and keep the status quo in real yields. The second is lower if inflation expectations stabilize as the Federal Reserve raises interest rates.

FXStreet senior analyst Dhwani Mehta noted the brewing formation of a death cross.  The 50-Day Moving Average (DMA) is crossing the 200-DMA for the downside. If the bearish is confirmed it would validate a death cross, which indicates the start of a new downtrend for gold. The 14-day Relative Strength Index also supports near-term downside bias.

Mehta also predicted that a daily candlestick close under $1,800 would push gold towards the critical horizontal support level at $1,785. On the upside, she sees immediate resistance at $1,822. However, Mehta sees the path of least resistance for gold prices to the downside. Every upside attempt could be considered a selling opportunity.

In physical trading, gold demand in India remained weak. It prompted dealers to offer steep discounts of up to $40 per ounce, from $8 last week. To bring down the trade deficit, the government raised the import duty on gold from 7.5% to 12.5%. In China, demand picked up as the country emerged from COVID-19 restrictions. Market players are optimistic about the gradual reopening of several cities. Several Chinese banks had begun importing gold.

In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, dropped 0.8% to 1,041.9 tons on Friday.