The Battle for Bullion Part II

Post last week's more robust than expected U.S. jobs data and hawkish BoE and ECB meetings, the U.S. 10-year real yield closed higher overnight at -48bps. For reference in Mid-November 2021, the U.S. 10-year real yield was trading at a deeply negative -117bps.

The move higher in real yields has not translated into a move lower in gold in a continued rebuff to last year's dominant price action.

Partly this is because the retracement in the U.S. dollar index, the DXY, post last week's ECB and BoE meeting, has supported gold. As viewed on the chart below, the price of gold and the DXY are negatively correlated

Also notable on the chart below, gold held its ground above the December $1753 low (blue arrow), despite the rally in the DXY to a fresh high at 97.44 (red arrow) - a classic case of bullish gold Intermarket divergence.

The latest CFTC positioning data show that Managed Money net length in COMEX gold more than halved last week to three month low of 49,914 contracts net long.

However, this selling may have been offset by demand from longer-term investors, including central banks. Elsewhere the largest bullion-backed ETF, SPDR Gold shares recently recorded its biggest daily inflow in dollar terms since listing in 2004.

These dynamics reiterate our view that gold's primary driver is no longer real yields, as noted in this article here three weeks ago. Instead, the driver of gold is investor accumulation to protect against the debasement of fiat currency/inflation, equity market volatility, and European geopolitical tensions.

Technically the wedge that has contained gold for the past six months is narrowing, which warns a break is coming. Should gold see a sustained break above resistance at $1845/55, it would be a bullish development and expose a move higher towards $1950.

Source Tradingview. The figures stated areas of February 8th 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Open a Forex.com account, or log in if you’re already a customer.
Search for the pair you want to trade in our award-winning platform.
Choose your position and size, and your stop and limit levels.
Place the trade.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.