RISING BOND YIELDS LIMIT THE UPWARD RECOVERY
Gold prices were under pressure throughout November as the S&P 500 rally and new Dow Jones Industrials records reduced demand for safe haven assets such as gold but last week prices recovered. Still, Friday’s jump in U.S. bond yields is a negative factor for gold prices. On the other hand, the policies of central banks and governments around the world regarding stimulus measures are favorable for precious metals.
The bullish rally in gold prices was halted on Friday after the 10-year bond yield reached its highest level in 8 and a half months at 0.984%.
But the decline in the yellow metal was also due to physical considerations. Weak demand for gold from India, the world’s second largest gold consumer, weighed on gold prices after Friday’s news that India’s gold imports in November fell 41% year-on-year to 33.1 MT and gold imports from January to November fell 63% year-on-year to 220.2 MT.
Conversely, in the medium term, the improved prospects for a debt-led stimulus package are positive for demand for gold as an asset reserve after House Speaker Pelosi said there is “momentum under way” toward a compromise on the $908 billion fiscal stimulus package.
The prospects for an additional stimulus package from the world’s central banks are positive for the price of gold. According to several ECB officials, at its meeting next Thursday, the ECB will likely agree to extend the pandemic bond purchase program by a full year to mid-2022. In addition, prospects for additional Fed stimulus measures increased Friday after Chicago Fed Chairman Evans said November’s U.S. employment report was “a bit disappointing”.
USD 1,850 LEVEL BECOMES A RESISTANCE TO BE OVERCOME
The prices reached the level of 1765 USD which had been used as resistance in May and which becomes support according to the principle of polarity. This price corresponds to a Fibonacci retracement of 50% of the March/August rise. The RSI was in the oversold zone indicating a possibility of a rebound that associated with a hammer, candlestick bullish reversal, on Monday, November 30 occurred.
Prices therefore started to rise again and posted a doji on Friday in contact with the former strong support at USD 1850 which is becoming resistant. As long as prices remain below this level, the correction is not over and the hypothesis of a return to support is not to be ruled out. A breach of the 1850 close would signal that this rebound could continue towards the area below USD 2,000.
Source DailyFx
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