After encountering resistance last week, gold has since reversed lower and may continue to fall as Treasury yields rise. With the US10y Treasury yield breaching 1.3% for the first time since late February 2020 earlier this week, investors are faced with rising risk-free rates. As gold has no inherent yield, gaining exposure to US government bonds becomes an attractive prospect for many investors as Treasury yields rise amid reflation hopes.
The negative correlation between the two assets is easily visible and it suggests as long as Treasury yields continue to rise, gold may suffer. With that in mind, the technical landscape of XAU/USD may see losses accelerate as the yellow metal nears a key level.
With yields rising and technical levels under fire, there is little to suggest the downtrend will suddenly give way to a bullish breakout. Suffice it to say, the medium-term outlook remains lower for the time being – further evidenced by the “death cross” formationin January.
In the shorter-term, however, gold may require consolidation before continuing lower in earnest. In the event of a recovery effort, initial resistance will reside at the $1,800 mark followed by $1,838. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis.
–Written by Peter Hanks, Strategist for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
This content was originally published here.
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