Gold Intermarket: making a comeback on lower US yields

Gold has picked up a bid today and in stark contrast to the price action seen in Asia and European trade. Gold dropped from 1266 to 1258 the low and has recently recovered back to 1268.90. 

The move has been driven by a drop in inflation expectations and a dollar that is under pressure ahead of this week’s FOMC. Expectations are for the Fed to hike this month around, but markets are looking for a change in tone from the statement that might indicate a pause in the path of normalisation of monetary policy. The Trump trade has been put into jeopardy with ongoing political uncertainties within his first year of Presidency. 

U.S. Treasuries virtually unchanged ahead of FOMC

The 10-year yields have fallen again today, down -0.40% at the time of writing to hover around 2.2050%. They opened at 2.2162%. DXY is down -0.12% at 97.02. Keeping a close eye on yield-bearing assets can help determine the direction of the non-yield offering precious metal. Also, USD/JPY is worth monitoring when determining the levels for gold given the correlation that the Japanese yen has with gold. Like gold, the yen is a safe haven for investors in times of uncertainty and it is without coincidence that the yen is slightly higher today, with a low of 109.76 vs 109.95 the open and highs of 110.27. 

Gold levels

If Gold close above $1,268.90 today and above $1,271, the correction can extend towards a reversal above the 31st May highs of $1,274.11. However, with the pending central banks this week, Gold may struggle to find traction, especially on a hawkish statement from the Fed. To the downside, $1,250 is a key target ahead of $1,214. 

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