Gold News: Can Gold Rally Extend as Oil, Yields and Dollar All Retreat?

Spot Gold Rallies as Oil, Yields, and Dollar All Pull Back

Spot Gold (XAUUSD) is higher Tuesday and the setup is about as clean as it gets for the bulls right now. West Texas Intermediate crude oil is pulling back after President Trump said Iran negotiations are continuing.

The 10-Year U.S. Treasury yield dropped to around 4.43%. The 2-year slipped near 4.02%. The U.S. Dollar Index is sitting at 99.05 and going nowhere. All three headwinds that have been pressing on Spot Gold (XAUUSD) for months are easing at the same time. That does not happen often.

Daily Spot Gold (XAUUSD) Technical Analysis

Spot gold (XAUUSD) is higher on Tuesday after finding support earlier in the session at $4463.01, which was essentially a test of $4481.78. This is the line that is 20% down from the record high of $5602.23, or the level that separates the bulls from the bears. What the early price action indicates is that bullish traders are bidding on weakness, but not chasing by taking out offers.

If $4481.78 fails then look for sellers to drive the market into the 200-day moving average at $4412.44. This long-term indicator has been successfully tested twice. Once on March 23 when the market bottomed at $4099.12 and again on May 28 when XAUUSD traded $4366.23.

On the upside, the key resistance is the 50-day moving average at $4630.62. This intermediate indicator has also been tested twice. Once on April 17 at $4891.54 and again on May 12 at $4773.58.

The 50-day and 200-day moving averages are compressing, which means both the bulls and the bears are being squeezed. This usually means a major breakout is coming. The question is which direction? The two lower tops has me leaning to the downside. A move through the 200-day MA will also mean the market is on the weak side of both the long-term Fibonacci level at $4541.88 and the bull/bear line at $4481.78.

In order to generate some upside momentum ahead of a 50-day moving average breakout, the market will have to hold the bull/bear level and regain the Fib level.

Falling Oil Eases Inflation Pressure

West Texas Intermediate crude oil is pulling back and that is the single biggest reason Spot Gold (XAUUSD) is catching a bid today. President Trump said Iran negotiations are continuing despite reports that talks had stalled. That took some of the supply disruption premium out of crude.

Lower oil changes the entire inflation calculation for Spot Gold (XAUUSD). Energy costs are the biggest input driving inflation expectations right now. When crude pulls back, the pressure on the Federal Reserve to stay restrictive eases with it. That is bullish for gold. The rate cut conversation cannot even start as long as oil is running above $90. Oil pulling back gives that conversation room to breathe.

Saxo Bank analyst Ole Hansen noted that Spot Gold (XAUUSD) continues to take its cues from crude because oil directly feeds into inflation expectations, bond yields, and the U.S. Dollar Index. All three moved in gold’s favor today.

Falling Yields Open the Door

The 10-Year U.S. Treasury yield dropped to 4.43%. The 2-year fell near 4.02%. Longer-dated yields also moved lower. That is the bond market telling you the inflation scare from the oil spike is fading.

Part of the move came after Lebanon announced a partial ceasefire between Hezbollah and Israel. Traders are reassessing whether the Middle East situation is actually getting worse or whether the worst-case scenarios from Monday are not going to materialize. Lower yields reduce the penalty for holding Spot Gold (XAUUSD) and that brought buyers back in.

Dollar Stuck Below 99.10

The U.S. Dollar Index is hovering around 99.05 and cannot get any traction. The safe-haven bid that pushed the dollar higher during Monday’s Middle East headlines is already fading. Currency traders are not willing to push the dollar in either direction ahead of Friday’s employment data and the JOLTS report earlier in the week.

A flat dollar is not bearish for the U.S. Dollar Index. But it is not helping either. Spot Gold (XAUUSD) needs the dollar to stay soft and right now it is cooperating. International buyers are getting a better price on gold when the dollar is stuck. That keeps demand flowing in from overseas.

Fed Speakers and Jobs Data Ahead

Beth Hammack, Mary Daly, and Governor Michael Barr are all speaking this week. Any hawkish language around inflation or energy costs could push yields and the dollar higher and take some of today’s bid away from Spot Gold (XAUUSD).

Friday’s May Non-Farm Payrolls report is the main event. Economists expect roughly 85,000 jobs with unemployment holding at 4.3%. A miss would be the first crack in the higher-for-longer case and Spot Gold (XAUUSD) runs on that. A beat sends yields and the dollar back up and today’s rally gets tested.

The JOLTS job openings data earlier in the week sets the tone before the payroll number drops.

What to Watch

Oil is pulling back. Yields are falling. The dollar is flat. All three forces that have been capping Spot Gold (XAUUSD) for months are easing at the same time. That is why the metal is bid today. Friday’s employment report is the risk. A strong print puts all three headwinds back in play immediately.

The bull/bear line at $4481.78 held this morning. That level and the 50-day moving average at $4630.62 are the only two numbers that matter this week. Hold $4481.78 and the squeeze between the 50-day and 200-day keeps building toward a breakout. Lose it and the 200-day at $4412.44 is next with $4366.23 and $4099.12 below that.

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