Gold Technical: Medium-Term Uptrend Damaged, Spooked by Rapid Rise in 10-Year US Treasury Yield

• Trump Trade of a stronger US dollar and rapidly rising longer-term US Treasury yields have triggered a negative feedback loop into Gold (XAU/USD)
• The longer-term positive aspect of Gold as a hedge and safe haven asset play to counter a potential wider US federal budget deficit will now take a backseat.
• Watch the US$2,484/US$415 support on Gold (XAU/USD)

Since our last publication, Gold (XAU/USD) has rallied as expected and hit a fresh all-time intraday high of US$2,790 on 30 October. The up move has stopped short of the highlighted US$2,850/886 key medium-term resistance zone.

The strong US dollar and rising 10-year Treasury yield are headwinds for Gold

Fig 1: 10-year US Treasury yield medium-term & major trends as of 14 Nov 2024 (Source: TradingView, click to enlarge chart)

After the outcome of the US presidential election on 6 November, market participants continued to focus on the Trump Trade that triggered a significant rally in the US dollar against the major and emerging currencies.

The US Dollar Index rose sharply, broke above a major resistance zone of 105.50/106.37, and hit a year-high high on Wednesday, 13 November.

All in all, it has recorded a gain of 7% from its 27 September low to Thursday, 14 November current intraday value of 106.96 at this time of the writing.

The current persistent strength seen in the US dollar has been primarily attributed to a rapid rise in the 10-year US Treasury yield despite the US Federal Reserve has just started its interest rate cut cycle in September.

The bond vigilantes have likely started to price in a possible scenario that the current Fed’s interest rate cut cycle is likely to be a short and shallow one where the Fed may only cut once or twice next year in 2025 due to the risk of a resurgence of higher inflationary expectations caused by Trump’s proposed policies of deep corporate tax cuts and higher trade tariffs on China and the rest of the world’s exports to the US.

The 10-year US Treasury yield has rallied by 85 basis points since its 17 September low and may be poised for a potential major bullish breakout above 4.49% that can potentially eye the major resistance of 5.20% next (see Fig 1).

If such a bullish scenario arises on the 10-year US Treasury yield, market participants may choose to focus their attention on the negative short-term aspect of Gold caused by a strong US dollar and a further rise in the 10-year US Treasury yield that increases the opportunity costs of holding Gold as it is a non-fixed income asset.

The longer-term positive aspect of Gold as a hedge and safe haven asset play to counter a potential wider US federal budget deficit caused by Trump’s “generous” corporate tax cuts policy, in turn, a catalyst for an erosion of confidence in the demand for US Treasuries has now taken a backseat.

The bearish break of US$2,590 sees further potential weakness in Gold

Fig 2: Gold (XAU/USD) medium-term & major trends as of 14 Nov 2024 (Source: TradingView, click to enlarge chart)

Gold (XAU/USD) broke decisively below a key medium-term support zone of US$2,600/US$2,590 on Wednesday, 13 November.

Earlier this week on Monday, 11 November, it broke below its 50-day moving average that held its price actions in the past four months since 3 July which suggests that its medium-term uptrend phase has been damaged (see Fig 2).

The next support zone to watch will be at US$2,484/US$415 (also coincides with the key 200-day moving average), and only a clear break with a weekly close below the US$2,285 long-term pivotal support is likely to put the major uptrend phase of Gold (XAU/USD) in place since October 2022 low in jeopardy.

On the other hand, clearance above the 2,664 key medium-term pivotal resistance may ignite the bullish tone for the resurgence of a fresh impulsive upmove sequence to set sight again on the US$2,850/US$2,886 resistance zone in the first step.