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Gold Price Forecast Brightens amid Drop in US Treasury Yields



Talking Points

– The FOMC's decision to withdraw any expectation of a rate hike in 2019 proved to be more than market participants were pricing in the big market reaction.

– Gold prices may see further gains as US Treasury yields continue their lower lower in the near term.

Retail traders are decidedly mixed on the US Dollar – EURUSD, GBPUSD, and USDJPY all have different biases.

Looking for longer-term forecasts on the US Dollar? Check out the DailyFX Trading Guides .

The March Fed meeting came in on the pages of expectations, even though market participants were pricing in a dull tone to begin with. By choosing to not only cut growth and inflation forecasts in the Summary of Economic Projections but also removing any expectation of a rate hike in 201

9, the FOMC came in with their most recent policy shift in years – perhaps pre-dating the start of the Fed. hike cycle in November 2015.

US Treasury Yields Breakdown

Coming into this week, US Treasury yields already looked like they were wanting to break lower . The March Fed meeting yields all the reason in the world so that the prospect of another rate this year was eliminated. Removing the possibility of a 25-bps rate hike in 2019 undergoes a bigger concern for yields, however: that the Federal Reserve is becoming increasingly warry of the state of the US economy.

Why does that matter for yields? The US Treasury 2-year yield is seen as a proxy for inflation while the 10-year yield is seen as a proxy for growth. That both of these maturities saw their yields fall to fresh monthly lows (and in the case of laughter, to fresh yearly lows) suggests that a profound shift did indeed occur today. Consider the recent US Treasury breakdown 10-year yield:

US Treasury 10-year yield chart: Daily Timeframe (March 2016 to March 2018) (Chart 1)

 Gold Price Forecast Brightens amid Drop in US Treasury Yields

The symmetrical triangle that formed came up after a break of the 2016 to 2018. Last week it was noted that “the higher probability move would be for lower yields. That is: a break of a long-term uptrend; followed by a symmetrical triangle consolidation; the triangle breaks lower. ”Price action today produced a fresh yearly low in the 10-year yield, confirming that a breakout is underway. As is often the case, what happens in bond markets is usually found in other asset classes.

US Treasury 10-year yield: 20-day correlation to gold prices (March 2017 to March 2018) (Chart 2)

 Gold Price Forecast Brightens amid Drop in US Treasury Yields

Good News for Gold Prices?

The US Treasury 10-year yield and gold prices have continued to hold a negative 20-day correlation since we last checked in on Friday . If the observation that the US Treasury has lowered its 10-year yield may be beneficial to gold prices, then it should be the time that gold prices are showing signs of bullish resolve.

Gold Price Chart: Daily Timeframe (June 2018 to March 2019) (Chart 3)

 Gold Price Forecast Brightens amid Drop in US Treasury Yields

Gold price action today produced in bullish outside engulfing bar on the daily timeframe (price closed at 1312.34, clearing the prior day high of 1310.83), concurrently seeing price close back above the daily 8-, 13-, and 21-EMA envelope. The combination of a strong candle and momentum indicators accelerating to the topside may well be for Gold prices in the near term.

Even though Gold prices pulled back at the end of February, pullback saw the March low establish a "higher low" "Than the January swing lows; the series of higher lows is coming above the 61.8% retracement of the entire 2018 high-low range. In the immediate term, more gains look increasingly possible; a move below the March FOMC meeting day low (1298.53) would negate optimism.

Read more: US Dollar Mired in Range; FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment ; quarterly trading forecasts ; analytical and educational webinars held daily ; and even one for those who are new to FX trading .

— Written by Christopher Vecchio, CFA, Senior Currency Strategist [19659002] To cont act Christopher Vecchio, email at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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