Gold Forecast: Treasury Yield rebound might pressure the yellow metal

TigerWit Africa

The US 10-year bond yield is set to recover from the slumps of the last two weeks. However, this might pressure the high-flying Gold to a much expected bearish correction.

The yield collapsed to 1.55% about a week ago after some Fed officials reiterated that inflation would adjust with the economic adjustment. The dip came after an over 15% surge to 1.7% starting from 7th May. At the time of the fall, the Gold price breached the 1875 resistance and has remained firm despite the latter yield slump – breaking and staying above 1900 to consolidate its biggest rally since 7 August 2020 when the last bearish move started. It’s clear that the yellow metal is ready to take out the 2075 all-time high in the long term. Despite being in a somewhat overbought situation, Gold bulls remain unhesitant to push even further.

However, the current resurgence in the treasury yield, if consistent, might eventually force the commodity to exit the overbought zone and make some bearish correction to perhaps retest the 1875 key area or even 1850 before resuming the long-term bullish trend. This is a counter-trend approach of course thus the next big opportunity for swing or long-term traders is buying the next dip as the upside potential is still open to touch 1960, 2000 and 2075 en-route to the next fresh all-time high.

US 10-year yield technical analysis

The dip from 1.775 to 1.483 was corrective and indicated that the long-term bullish trend would resume. The resultant push to 1.706 was perfect before the corrective dip to 1.55. The yield is now moving away from 1.55%. If this degenerates into a bigger rally out of the 1.70-to-1.55 corrective channel, we might see a break above 1.706. From there, the long-term bullish trend could push above 1.775 and up to 1.9. This will eventually cut down bids for Gold and drag it lower. A look at the Gold chart below suggests the metal is close to completing a wedge reversal pattern below 1920.

Gold technical analysis

After looking at Gold’s long-term potential, we started monitoring the wave development from 1675. The price pattern from 1875 is a typical Elliott wave impulse structure with an overly extended 3rd wave. In fact, the minor wave 3 might take the price above 2100 as the chart above shows. The minute wave iii (circled in black) is in the 3rd stage – wave (iii) in red which is about completing an ending diagonal/wedge reversal structure. A wave (iv) decline to retest 1875 or below to 1850 is very much likely especially if the yield surges as expected above. 1920 is the next resistance and traders should watch prices around or below it for a possible decline. However, the long-term bullish trend is expected to continue afterward if everything plays out as this forecast expected.

Disclaimer: This communication is for informational purposes only and should not be viewed as any form of recommendation as to a particular course of action or as investment advice. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This communication has been prepared based upon information, including market prices, data, and other information, believed to be reliable; however, TigerWit does not warrant its completeness or accuracy. Trading CFDs involve risk and can result in loss of capital.

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