- Gold’s decline continues as the U.S. dollar and bond yields rise, weighing on precious metals.
- Traders are eyeing key support levels as gold slides below crucial technical zones.
- This week’s inflation and retail sales data could influence gold’s direction amid market changes.
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The started the new week on an even keel, falling as Asian markets opened tonight. Gold and gold continued to decline last week, marking a second consecutive decline. With Trump’s victory seen as positive for geopolitical stability, gold came under downward pressure.
It slipped 1.9% to end the week at $2,684, while silver fell 3.5% to close at $31.31. On the other hand, reached new records last week, before recording further gains at the start of this week. Precious metals could face a bumpy ride after an exceptional year until last week’s decline.
Rising bond yields and Trump’s big victory are expected to dampen the metal for a while as prices continue to ease from heavily overbought technical levels. This could be a healthy retreat for gold, which would rid itself of some of the foam from its incessant rally.
Trump’s victory, gold’s loss
Last week was eventful for the financial markets. Despite predictions of a close race, Donald Trump won a landslide victory, with Democrats capturing most of the key states and achieving a decisive victory.
Markets reacted positively, with US stocks and cryptocurrencies jumping in response. Meanwhile, the Federal Reserve cut rates by 25 basis points, as expected, although Chairman Powell’s remarks did not bring new ideas or guidance.
Rising Yields and US Dollar Could Further Hurt Metals
Over the past two weeks, gold finally gave in to rising yields and a stronger US dollar. Rising bond yields make assets such as gold and silver, which do not pay interest, less attractive.
Rising yields increase the opportunity cost of holding these types of assets, since you can earn a fixed nominal return by holding “risk-free” government debt. Having gold priced in USD will make it more expensive for foreign buyers, weakening demand.
After weak October, third quarter and , last week saw some of the key US numbers beat expectations, including the services PMI (56.0 vs. 53.8) and the UoM ( 73.0 versus 71.0), the (73.0 versus 71.0).
But last week wasn’t about data at all, with elections dominating the agenda.
The dollar only temporarily weakened on Thursday before rebounding on Friday, helping the Dollar Index post a new weekly green candle as it finished near the key 105.00 handle. This level is very important from a technical point of view. A clear break above this level could allow DXY bulls to target the highs of June (106.13) and April (106.51), or even that of October 2023 (107.35). If the DXY continues to rise, gold should, in theory, move in the opposite direction.
U.S. inflation and retail sales data among macroeconomic highlights of the week
This week, data and will dominate the agenda, although the US economic calendar is quiet today with US banks closed for Veterans Day. Meanwhile, investors will continue to digest the impact of Trump’s victory and the Fed’s decision to cut rates by 25 basis points on Thursday.
Fed Chairman Powell remained reserved on whether the Republican’s big victory would lead to a slowdown in the pace of rate cuts, particularly given potential changes in fiscal policy. Despite Thursday’s sell-off, investors maintained their position on the dollar, supported by expectations of increased government spending and tax cuts under Mr. Trump’s presidency. This sentiment, combined with stronger consumer sentiment data on Friday, allowed the yellow metal to close the week lower.
Technical analysis of gold
Gold’s two weeks of decline have certainly resulted in a loss of previous strong upward momentum, although this does not mean that the long-term uptrend is over. Regular readers may remember that I have been warning of a pullback for weeks, not only due to macroeconomic factors such as rising yields and the US dollar, but also because long-term momentum indicators term have reached significant overbought levels.
The RSI indicator on the weekly and monthly charts has reached a level well above 80.0. Although recent weakness in gold prices has helped to alleviate these overbought conditions somewhat, they remain deep in overbought territory. Further selling or a long consolidation is necessary to allow these momentum indicators to relax further.
On the daily time scale, we can see that gold has broken an uptrend line that had been in place since August. It also fell below the 21-day exponential average, which more objectively indicates that the trend has indeed turned bearish in the short term. The broken support levels at $2750 and $2708 turned into resistance. The $2708 level is now critical for the near-term outlook. If it remains below this level, the path of least resistance would remain to the downside.
If the selling pressure continues, where might we see dip buyers start to show up again? For me, the key level is the 2024 uptrend line, which is around the $2600 area or thereabouts, depending on how quickly the price reaches that level (if it reaches it).
A few other important levels I will be watching ahead of this area are $2643 and $2625, which are short-term support levels to watch. Meanwhile, if the 2024 uptrend line breaks decisively, we could see a much deeper correction, in which case I wouldn’t rule out the possibility of gold retesting the $2500-$2530 zone .
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Warning : This article is written for informational purposes only; it does not constitute a solicitation, offer, opinion, advice or investment recommendation and is not intended to induce the purchase of any assets in any manner. I want to remind you that any type of asset is evaluated from multiple angles and carries high risk. Therefore, any investment decision and the risk associated with it lies with the investor.
