Revisiting the outlook for gold

Back in late January when US 10 year yields were trading just above 1%, JP Morgan hosted a client Macro Conference. A good portion of the over 3400 investors that attended, were asked to participate in a survey on market-related topics.

Gold 2

The survey revealed the majority of investors were expecting US 10 year yields to rise to between 1.25% and 1.75% by year-end. Notably, only 10% of respondents thought that the US 10 year yield sitting between 1.50% - 2.00% presented a threat to equity markets.

Here we are just 6 weeks later, US 10 year yields have already reached 1.50% and the high beta Nasdaq is almost 9% off its all-time highs. Admittedly not too big a deal in the bigger picture.

Let’s for a moment presume that those surveyed were off in timing but correct in terms of pricing. That 1.50% becomes the “new normal” in nominal US 10 year yields and that real yields remain deeply negative. It starts to shed a more favourable light on some markets including gold that have been beaten up in recent weeks.  

The break below the November $1764 low appears to have been driven by technical stop-loss selling. This is supported by Commitment of Trader positioning data that indicates ~64,000 long futures contracts have been closed since the start of the year with another decrease in long positions expected to come through in the next update.

Learn to Trade Gold here

This “position wash” has driven gold towards trend channel support $1700/1690 area. I am watching closely for a bullish reversal type candle to form near this support area as the set up to a long trade in gold.

If gold can then break about $5.00 above the high of the bullish reversal candle, it would be an encouraging sign that that a stronger recovery is underway, initially towards $1850 with scope to trend channel resistance $1900 area.

Keeping in mind, if gold first breaks and closes below trend channel support let's say $1685ish it would warn that a deeper setback is underway towards support $1660/50 area.

Revisiting the outlook for gold

Source Tradingview. The figures stated areas of the 4th of March 2021. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation


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