Daily Market Recap - GOLD Continues to Weaken Due to Bond Yields

The recent surge in bond yields, triggered by inflation concerns, continues to weigh on gold prices. While the prospect of an economic recovery is benefiting equities overall, investors are increasingly concerned that accelerating growth and too rapid a rise in inflation could force central banks to tighten their ultra-accommodating monetary policies.

The rise in government bond yields accelerated on Thursday in Europe and especially in the United States, where the yield on 10-year Treasury bonds briefly exceeded 1.6%, the highest since the start of the coronavirus crisis and above the yields provided by the dividends of the S&P 500 index, the benchmark for many investors.

After reaching new highs during the session, bond yields in the eurozone, however, eased a little on Friday. The interest rate on the French ten-year debt thus ended at -0.01% after having crossed the symbolic bar of 0% on Thursday for the first time since June 2020. With the rise in borrowing rates, a shift is taking place towards the bond market, which is offering more attractive yields than risky assets.

The rise in yields since the beginning of February is a symptom of inflation expectations and the tightening of monetary policy across the Atlantic, against the backdrop of a new economic stimulus plan, a return to growth, and a surge in vaccination campaigns.

Graphically, the ounce of gold continues to plunge, as the break in the support at $1,750 generates a strong downward acceleration. It is difficult to foresee a rebound in the face of this strong selling pressure; the yellow metal has been locked in a bearish channel since August 2020, so prices are likely to push the lower bound down towards $1,660.

Admittedly, the long-term dynamics remain bullish, but sellers are holding their own in the current context. The next support to look for a rebound is at $1,703; this level could stop the bearish hemorrhage in the short term.

(Chart Source: Tradingview 28.02.2021)

However, the bullish pullback will be confirmed if the market manages to pull out of its upper channel. As such, a bullish technical signal will take shape as the $1,850 level is crossed. Nevertheless, the outlook and market conditions at the moment do not look favorable in support of a bullish rally in the gold price. Therefore, the likely strategy for the coming weeks remains bearish with a target of around $1,660.

Support & Resistance Levels:

R3 1,902.24

R2 1,874.75

R1 1,800.00

S1 1,715.54

S2 1,684.34

S3 1,638.60

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.