Gold prices have been under heavy selling pressure recently amidst the ongoing rally in US treasury yields. Yields on both the 10- and 30-year notes have been appreciating quickly amidst the continued pickup in US inflation expectations. The better spate of data released recently as a result of the positive impact from the $900 billion package agreed in December has amplified expectations for the US economic recovery.
With the government vaccination drive progressing quickly, traders are anticipating that the US economic recovery will gather pace of Q2 and beyond. With the president’s $1.9 trillion fiscal package having now passed through Congress, traders are anticipating an even greater boost to spending. With this in mind, traders have been bidding up yields under the view that the Fed is likely to begin scaling out of asset purchases this year, ahead of schedule. While the Fed has so far downplayed this view, continued data strength and positive vaccination headlines are adding weight to this view.
This week traders will be looking at the latest set of US inflation data for last month. If CPI comes in stronger than expected this is likely to fuel a further push higher in US yields, taking USD further higher also Weekly unemployment claims will also be on watch given the Fed reiterating its focus on achieving full employment.
Silver prices have also been hard hit recently with the resurgence in the US Dollar sending prices back down towards 2021 lows. The weakness in equities over recent weeks has also destabilised silver prices. With gold sinking and the Dollar rallying, the near-term outlook looks skewed towards further losses though the decline could be stemmed this week if inflation comes in lower than expected, causing the Dollar rally to pause.
Following the breakdown through the bottom of the contracting triangle pattern, gold prices have broken below the big 1764.98 level support and are now close to testing the 1669.42 level. While below the 1764.98 level, the outlook remains bearish with an eventual break below the 1669.42 level the next objective for sellers.
The failure at the 29.8611 level has seen price reversing heavily and selling off back down towards the 25.0756 level, breaking through the rising trend line from December lows. If price breaks back below the level, the next support region to note is down at the 22.5950 level.
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