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Falling bond yields push spot gold prices back to 200-day moving average

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(Kitco News) - The gold market has found a new bounce in its step, with the cash market retesting its 200-day moving average as bond yields continue to drop.

Bond yields in New York 's afternoon session dropped to a session low of 1.16%, which in turn has pushed spot gold prices to $1,815.40 an ounce, roughly unchanged on the day. Gold 's futures prices on Comex are still trading under the 200-day moving average but are near session highs.

Live 24 hours gold chart [Kitco Inc.]

December gold futures last traded at $1,819.50 an ounce, up 0.13% on the day. Bond yields and gold started to move after data showed slower than expected growth in the U.S. manufacturing sector.

The Institute for Supply Management said that its manufacturing index showed a reading of 59.5% in July, down from June 's reading of 60.6%. According to consensus forecasts, economists were expecting to see a level around 60.9%.

Some economists have noted that mixed economic growth in the last few weeks could force the Federal Reserve to halt its plans to cut back on its monthly bond purchase by the end of the year, which would be bullish for gold.

Daniel Pavilonis, senior commodities broker with RJO Futures, said that gold continues to benefit from rising inflation pressures as the U.S. central bank is expected to maintain its ultra-accommodative monetary policies.

He added that the latest fuel to the inflation heat is the U.S. government 's $1 trillion infrastructure bill, which continues to wind through Congress.

"No matter where you look, inflation is here, and the Federal Reserve is going to remain accommodative," he said. "The infrastructure bill is going to be incredibly inflationary, and that will be good for gold."

"Gold has managed to push back to its 200-day moving average, and if it can stay here, we could see a big move to the upside," Pavilonis added.

However, not all analysts are convinced that gold is ready to break out. Some analysts see gold still in a holding pattern, especially ahead of Friday 's employment report.

According to consensus reports, economists are expecting that 895,000 jobs were created in July. Some economists have said that a substantial employment number could prompt the Federal Reserve to reduce its monthly bond purchases by the end of the year.

In an email comment to Kitco News, Darin Newsom, president of Darin Newsom Analysis, said that gold 's price action indicates a lot of indecision in the marketplace ahead of Friday 's employment report.

Despite Monday 's positive price action, many analysts see gold trading in a range between $1,830 an ounce and $1,790 an ounce.

In a note published Monday morning, Margaret Yang, market strategist at DailyFX.com, said that she is watching support at $1,790 an ounce in the near term.

"Technically, gold prices may be forming a 'Double Top ' pattern after failing to breach the 1,835 resistance for a second try. Immediate support levels can be found at $1.790," she said. "The MACD indicator is flattening, suggesting that bullish momentum may be fading."

Some market analysts have noted that while gold has managed to turn around Monday, other important commodities have been struggling. Oil prices continue to see a sharp selloff Monday, with West Texas Intermediate crude oil fall to around $71 a barrel, dropping more than 3% on the day.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.