Real Yield and Gold
The US 10-year real yield continues to climb higher and is currently at 2.286%, largely due to the Federal Reserve's narrative of "higher for longer." This is adding headwinds to the risk market and driving money towards the safety of the dollar. This, in turn, is impacting on gold. The precious metal is moving inversely to the real yield. To this end, the correlation coefficient (bottom indicator) between gold and the real yield is -80%. This is a strong and negative relationship. I.e., As the real yield continues to push higher, it is impacting negatively on the yellow metal.
Weekly Chart Analysis
There are several technical signals which are worrying with regards to gold:
- XAUUSD's candlesticks have dropped below its black 30-week EMA and the EMA has turned down.
- Gold has charted a series of lower peaks followed by lower troughs. This puts XAUUSD into a defined downtrend.
- The weekly RSI is below 50 (green rectangle). This is the bearish side of the indicator. The longer the RSI maintains on this side, the more pressure the gold price will be under.
Currently, the key driver for gold is the higher real yields. However, we have noted in a previous article that the real yield is overbought. If this corrects, gold may find support. However, this is still to happen.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.