Gold at risk of protracted declines as hawkish Fed outlook lifts yields

Gold looks at risk of a protracted period of decline, as rising yields highlight the potential for long-term weakness for the precious metal.

Gold at risk if yields continue to rise

US 10-year treasury yields have kick-started after a prolonged period lull that saw yields fall back from its peak in March. The Federal Reserve (Fed) appear ready to start tapering in the coming months, and the premise of 2022 rate hikes brings expectations of further upside in yields as we go forward.

The chart below highlights why the trajectory of yields is crucial for any gold trader. Invariably, we have seen yields track a downward path over the long-term, which has also helped bring about a long-term uptrend for gold. The chart below highlights exactly that, with the ongoing downtrend in 10-year yields bringing strength for gold (inverted on the chart).

Rate hikes often bring higher yields

Nonetheless, yields often rise during period of monetary tightening.

The chart below points towards this trend, with yields starting to rise often slightly ahead of those periods of monetary tightening. Meanwhile, that rise in yields also seems to fall off as the rise in rates draws to an end.

With both those factors in mind, we can draw a conclusion that in the event that the Fed continues to move towards monetary tightening, yields will likely rise and gold will suffer.

The long-term downtrend for yields does still hold, meaning that any such downside for gold could be another long-term retracement within its uptrend. Nonetheless, it does highlight the risks ahead for precious metals.

Gold technical analysis

Looking at the gold chart in isolation, we can see that the monthly chart signals how we could be within another prolonged retracement period alike to 2012-2015.

Notably, it was in 2012 that the US so-called taper tantrum occurred. Thus, while it took many years beyond 2012 for the Fed to raise rates, tapering of asset purchases can also play a role in damaging sentiment around gold. Crucially, this current phase does look strikingly similar to the beginning of the decline in 2013. That highlights just how important the $1677 support level could become.

From a daily perspective, the recent rally failed to break through $1834 resistance. Instead we have seen the price reverse lower over the course of this week. This raises the possibility of us continuing the bearish trend seen in recent months. When yields starts to ease back, gold is likely to find support. However, as long as the Fed remain steadfast over their monetary tightening plans, gold is likely to suffer.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Trade on commodities

Trade commodity futures, as well as 27 commodity markets with no fixed expiries.1

  • Wide range of popular and niche metals, energies and softs
  • Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
  • View continuous charting, backdated for up to five years

1In the case of all DFBs, there is a fixed expiry at some point in the future.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.