- A close correlation between gold prices and T-Note is a key factor determining the future of the precious metal
- A strong resistance can be found at a monthly time frame
- Some signs heralding a potential rebound of gold prices
Gold prices and the US 10Y bond price (T-Note on xStation5) remains strongly correlated to each other, however some deviations can occur at times caused e.g. by the US dollar, risk aversion, Chinese activity on the physical gold market or simply technical factors. Taking into account that the US bond market is a significant variable steering gold prices it’s worth keeping a close eye on that relationship. Let’s explain that the bond price and the bond yield move in an opposite direction and respond to changes in the inflation backdrop as well as risk aversion. Thus, the latest signals coming from the Federal Reserve suggesting continued tightening of monetary policy have exerted upward pressure on market rates which in turn has dragged gold prices down. What does technical analysis tell about the future of gold?
Correlation between T-Note and gold prices remains strict. Source: xStation5
Let’s begin with a monthly interval which illustrates that gold price failed to break higher twice in 2016 and 2017 and stalled in the vicinity of a 112.8% retracement. What’s more, one could notice that the price drew a bearish candlestick in September, however a key support for buyers remains a broken long-term trend line.
Gold prices failed to break through a 112.8% retracement in the past month. Source: xStation5
Taking a look at a weekly time frame one could spot that the ongoing uptrend is being supported by a 100% retracement at around $1265. If the price breaks it to the downside, it could open up space for deeper declines towards a broken downward trend line. In turn, once the FED keeps delivering more hawkish hints, it could result in yet deeper falls even nearby this year’s lows.
All moving averages are close to one another which could herald an increase of volatility. Source: xStation5
In turn, a H4 interval suggests a possible continuation of a bull trend as the price managed to stay above a local support which may suggest a possible formation of an inverted head and shoulders pattern (SHS). If so, it might be a sign of returning bulls.
Gold prices could be forming a potential inverted SHS pattern. Source: xStation5
Finally, an intraday time frame illustrates that the ongoing rises might morph into a fresh impulse while a possible breakout of a resistance in form of a 38.2% retracement could result in an extended leg higher.
A local double bottom formation along with a breakout of a 100% retracement confirm a possible advantage of bulls. Source: xStation5