Gold And Silver Face Strong Pressure As Short-Term Yields Rise
Short-Term Yields Reach Yearly Highs, Putting Pressure On Precious Metals
At the beginning of November, gold received strong support and moved from the $1775 level to the $1875 level on fears about rising inflation. At that time, gold ignored the strength of the U.S. dollar.
The U.S. dollar continued to move higher against a broad basket of currencies and finally managed to put pressure on gold. Dollar’s move was very significant. The U.S. Dollar Index started the month near the 94 level and has recently made an attempt to test the 97 level.
Gold reacted to the pressure from the rising dollar and declined from the $1875 level towards the $1775 level. Currently, gold is trading in the range between the support at $1775 and the resistance at $1800.
While gold is traditionally viewed as a hedge against inflation, the market is concerned about the future trajectory of interest rates. The Fed has been telling the market that high inflation is transitory, but prices kept moving higher.
Recent earnings reports from several retailers highlighted supply chain problems. Meanwhile, the Personal Spending report, which was released on Wednesday, indicated that Personal Spending increased by 1.3% month-over-month in October after growing by 0.6% in September.
The continued strength of Personal Spending at a time when supply chain problems hurt supply may lead to even higher prices and push Fed to react. The central bank may cut its asset purchase program at a faster pace, and then proceed with raising rates.
Higher rates serve as a bearish catalyst for gold and silver which pay no interest. The Treasury market indicates that it expects that higher yields are inevitable. The yield of 10-year Treasuries is stuck near the 1.65% level, which is below yearly highs near 1.77%. However, the yield of 2-year Treasuries, which shows that market’s expectations for near-term yields, is at yearly highs. Currently, the yield of 2-year Treasuries is trying to settle above 0.65%. Back in September, it was stuck near 0.21%.
The recent upside move in the yield of 2-year Treasuries has put significant pressure on gold and silver. Correspondingly, gold and silver ETFs have also found themselves under pressure. SPDR Gold Trust made several attempts to settle below $166.50 while iShares Silver Trust tested the support at $21.70.
Traders will likely stay focused on rising yields as they present a significant threat to gold and silver prices. In case the yield of 2-year Treasuries continues its robust upside move, gold and silver will find themselves under more pressure.
Gold Technical Analysis
Gold easily moved below the 20 EMA and the 50 EMA and managed to settle below the $1800 level. It managed to receive support near the $1775 level and stablized in the $1775 – $1800 range.
In case gold manages to settle below the support at $1775, it will head towards the next support level at $1750. This is a major support level for gold, and a test of this level will be a big test for gold bulls. In case gold declines below $1750, it will gain additional downside momentum and head towards the next support at $1720.
On the upside, a move above the $1800 level and the 50 EMA will push gold towards the next resistance which is located near the 20 EMA at $1815. A successful test of the 20 EMA will open the way to the test of the resistance at $1830.
In case gold gets above this level, it will move towards the resistance at $1845. If gold manages to settle above $1845, it will head towards the next resistance level at $1875.
Silver Technical Analysis
Silver received support near the $23.50 level and is trying to rebound. The nearest resistance level for silver is located at $23.90. In case silver manages to settle above this level, it will get to the test of the 50 EMA at $24.00. A move above the 50 EMA will push silver towards the resistance at the 20 EMA at $24.20.
On the support side, a move below $23.50 will open the way to the test of the support at $23.20. In case silver gets below this level, it will head towards the next support at $22.90. A successful test of this support level will open the way to the test of the support at $22.60.
Key Support Levels To Watch
RSI for both gold and silver remains in the moderate territory, and there is plenty of room to gain additional downside momentum.
For gold, the key support level is located at $1750. A move below this level will present a serious problem for the bulls. In case gold stays above this level, it will have a good chance to stabilize and get back to the previous upside trend.
For silver, the key level is located at $23.20. A move below this level will show that silver is ready to develop additional downside momentum.
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