Gold is all up as the bulls are finally set on a journey to another record high. However, with the treasury yield bound to have one more rally, the yellow metal might start a retracement as it approaches a key resistance level.
Isn’t it clear now that the long-term bullish trend has resumed? It will only take some time before the yellow commodity flies far above $2,100 per ounce. Since August, the metal is making the kind of surges similar to March-to-July (2020) 35% build-up to $2,075 – the current all-time high. Since the most recent $1675 bottom in March, Gold has bounced over 11% breaching 1800 after dual failed attempts and now off to 1900. However, it seems the metal is temporarily overbought and will most likely take a break from the bulls as a minor decline follows. Why is a retracement close?
10-Yr Treasury Yield could take higher levels
After nearly four weeks of decline, the treasury yield surged over 14% from the 1.483 level where it bottomed about two weeks ago. The recovery was also aided last week by the high CPI data fueling fresh inflation speculations. However, as the chart below shows, some of the gains have been shed but the yield could be up again as the market looks forward to Wednesday’s FOMC report.
The dip from 1.775 to 1.483 lasted for 38 days and completed a double zigzag pattern. The current surge broke out of the corrective channel territory and then completed a 38.2% retracement before the most recent minor move away. Although the decline could continue to the 50% level at 1.595 or even 61.8% at 1.568 there are higher chances that the 38.2% will hold and the yield would push higher from here. A break above 1.707 will definitely put some pressure on Gold which has defied the inverse correlation between the two instruments so far this week.
Gold approaches 1875 resistance
In the last Gold technical forecast update, we reckoned two things – that the bearish correction since August has ended at the 1675 bottom and the metal could hit 2400 before the year ends. After taking a long-term outlook, it’s important to follow up with the short-term outlook to recognize sentiment shift ahead of time. As the chart below shows, the recovery from 1675 is healthy for a trend – completing a bullish impulse wave pattern which is the minimum required to build a strong base.
A minor degree (in black) impulse wave pattern is currently in the 3rd stage. Minute sub-wave 3 (circled red) approached 1875 resistance after completing 5-leg. It’s very much likely to see some decline around here down to the 38.2% retracement level around 1815 in the short-term before the next leg pushes the metal above 1900 to complete wave 3 (minor degree in black). The long-term bullish trend is still intact and every corrective decline will provide fresh long opportunities. There could be such a scenario printed on the chart in the coming days and traders should be at alert. However, no reversal pattern is yet forming at the current level and thus, a surge above 1875 is still a possibility. Therefore, if 1875 doesn’t hold, traders should watch out for 1900.
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