(Kitco News) – Gold has had a banner year, hitting a record-high of $2,790/oz for an increase of more than 40% from the February lows, but according to one analyst, the medium-term uptrend has been damaged, and it could take some time for macroeconomic factors to reignite the yellow metal’s rally
“Since our last publication [on October 22], Gold (XAU/USD) has rallied as expected and hit a fresh all-time intraday high of US$2,790 on 30 October,” noted Kelvin Wong, Senior Market Analyst at OANDA. “The up move has stopped short of the highlighted US$2,850/886 key medium-term resistance zone.”
Wong noted that along with the ‘Trump Trade’ rally that saw risk assets surge higher while gold floundered, “The strong US dollar and rising 10-year Treasury yield” have also emerged as strong headwinds impacting gold's momentum.
“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,” Wong highlighted. “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.”
In total, the USD has increased 7% from the low hit on Sept. 27 and on Thursday, set an intraday value of 106.96, he noted.
“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 having just started its interest rate cut cycle in September,” Wong said.
And the pressure brought by a rise in the USD and bond yields could continue to impact demand for gold in the near term, he suggested, as the latest PPI report and a warning from Fed governor Adriana Kugler about a potential pause in interest rate cuts could see gold overshadowed by higher yield opportunities.
“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,” he said.
“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,” he said.
Wong warned that if such a rise in the 10-year US Treasury yield occurs, “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,” he added.
Taking all that into account, Wong said, “The bearish break of US$2,590 sees further potential weakness in Gold.”
“Gold broke decisively below a key medium-term support zone of US$2,600/US$2,590 on Wednesday, 13 November,” he noted. “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.”
As for how far gold’s price could slide, Wong highlighted that “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 in place since October 2022 low in jeopardy.”
For the bullish case to be re-established, he highlighted the “key medium-term pivotal resistance at $2,664,” saying that if gold can clear above this level, that “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.”
At the time of writing, spot gold is trading at $2,571.60, unchanged on the session.
