Gold (XAU/USD) prices experienced a slight decline on Monday, mirroring a broader trend among commodities due to global growth concerns and a surge in US Treasury bond yields. The rising yields are attributed to the increased likelihood of former President Donald Trump’s potential victory in the upcoming presidential election, raising fears of higher inflation and interest rates, which typically weigh on non-yielding assets like gold.
Market Drivers: Trump Effect and Geopolitical Backdrop
- Trump Effect on Bond Yields: Donald Trump’s potential return to the White House, with his expected tax-cut and spending policies, is driving US Treasury yields higher. This increase in yields, coupled with a stronger US Dollar (USD), is putting downward pressure on gold prices.
- Geopolitical Tensions: The ongoing conflicts in the Middle East and Ukraine, as well as the growing divide between the East and West, are fueling demand for safe-haven assets like gold, providing some support for its price.
- De-dollarization Efforts: The BRICS nations’ push to reduce reliance on the US Dollar in global trade is also a long-term bullish factor for gold, as it could potentially increase demand for the precious metal as an alternative reserve asset.
- Central Bank Demand: Strong demand from central banks, particularly in Asia, continues to underpin gold prices.
Technical Analysis: Gold’s Price Outlook at a Crossroads
Gold’s price action is currently at a critical juncture. While the recent rally invalidated a bearish Head-and-Shoulders (H&S) pattern, the subsequent pullback and the potential formation of a more complex topping pattern are creating uncertainty.
Key levels to watch include:
- Resistance: The June 7th high at $2,388 is a key resistance level. A break above this level could signal a continuation of the upward trend and potentially target the all-time high of $2,451.
- Support: The neckline of the invalidated H&S pattern at $2,279 remains a crucial support level. A break below this could trigger further declines towards the 0.618 Fibonacci retracement level at $2,171.
Key Takeaways:
- Gold is facing a pullback due to rising US Treasury yields, fueled by the “Trump effect.”
- Geopolitical tensions and de-dollarization efforts are providing some support for gold prices.
- The technical outlook remains uncertain, with the potential for both bullish and bearish scenarios depending on the resolution of the current consolidation phase.