Falling Ahead of 30-Year Treasury Auction, Resistance Reinforced

Gold, XAU/USD, Treasury Auctions, US CPI Data, US Dollar – Talking Points:

Gold prices declined as the US Dollar, Treasury yields rose
Traders eyed weak demand at US government bond auctions
Eyes on 30-year rate auction, XAU/USD pressured by SMA

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How to Trade Gold

Gold prices weakened over the past 24 hours as the anti-fiat yellow metal felt the pressure of a rising US Dollar and longer-term Treasury yields. Relatively weaker demand for the 3-year and 10-year bonds at auction pushed up rates. This can be analyzed by taking a look at bid/cover ratios. Those clocked in at 2.32 and 2.36 versus 2.69 and 2.38 prior respectively.

The 10-year Treasury yield also rallied throughout Tuesday’s Asia-Pacific trading session, extending gains from Wall Street hours. This could be in anticipation of similar outcomes at the 30-year government bond auction later today at 17:00 GMT. Weak demand there may further bolster rates, pressuring precious metals as they are inherently non-yielding assets.

Still, there is also the US headline and core CPI rate which will cross the wires at 12:30 GMT. The former is expected to clock in at 2.5% y/y while the latter at 1.5%. More attention may be placed on the core reading which typically shows the underlying rate of inflation and is less volatile than its headline counterpart. It is also the one that the Federal Reserve tends to pay more attention to.

Policymakers have thus far opened the door to temporarily higher transitory inflation as the economy recovers from the coronavirus outbreak last year. Still, an unexpectedly strong showing in CPI data could unnerve traders. That risks denting the outlook for XAU/USD as markets continue to constantly update bets on how soon the Fed will raise rates in the medium term.

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Gold Technical Analysis

Gold prices have rejected the key 1744 – 1755 resistance zone after breaking above a bullish Falling Wedge chart pattern. The 50-day Simple Moving Average is also appearing to act as key resistance, pressuring the yellow metal. Another downside day for XAU/USD could pave the way to revisit lows from March and the 1658 – 1678 support zone.