Lower yields help gold recover
Gold fell sharply Friday as risk-off sentiment dominated trading. Today, the focus has shifted toward lower Treasury yields, helping gold recover some of that decline.
The U.S. 10-year yield is down 5.0 basis points at 4.87%. Gold typically benefits from falling yields because it pays no interest. When bonds offer a lower return, the opportunity cost of holding gold falls, making the metal relatively more attractive.
The rebound is also getting help from a successful test of a key technical support level.
Buyers lean against the 100-week moving average
On the weekly chart, gold tested its 100-week moving average at $3882.35 (see blue line on the chart above). Today’s low slipped just below that level before buyers stepped in and pushed the price higher.
Gold is now trading near $3968, just below the session high of $3970.34.
The bounce reinforces the importance of the 100-week moving average as a longer-term barometer. As long as the price remains above it, buyers who leaned against that level can stay in the game. A move back below would undermine the rebound and give sellers more control.
Reclaimed swing area provides close support
Today’s recovery has also taken gold back above the swing area between $3942 and $3959. That zone defined a series of swing lows from June 24 through July 17 before giving way during Friday’s tumble (see red numbered circles on the chart above).
Moving back above the area is a positive step for buyers. They will now want to see support develop within that zone, with $3942 serving as the close risk-defining level.
Holding above keeps the recovery intact. A move back below would weaken the buyers’ progress and leave the rebound looking more vulnerable.
Hourly moving averages are the next upside tests
The next upside target is the falling 100-hour moving average at $3997.31, near the psychological $4000 level. Above that sits the falling 200-hour moving average at $4023.09.
Both moving averages would need to be broken—and stay broken—to increase the bullish bias. Gold has traded below its 200-hour moving average since October 19, making that level a particularly important test.
For now, buyers have defended key weekly support and reclaimed a swing area. The next step is to build on those gains by holding above $3942–$3959 and pushing through the hourly moving averages.
In the video above, I speak to the technicals that are driving the price of gold in greater detail.
This article was written by Greg Michalowski at investinglive.com.