Weekly Market Analysis / 1 - 5 November 2021

Gold turns bullish on falling bond yields, technical breakout

Gold struggled to find direction in the first half of the week but came under strong bearish pressure late Wednesday with the initial market reaction to the US Federal Reserve’s policy announcements. The sharp decline witnessed in the benchmark 10-year US Treasury bond yield, however, allowed gold to stage a decisive rebound toward $1,800 on Thursday. Gold didn't have a difficult time clinging to its gains in the second half of the week.

  • Gold has fluctuated in a wide range throughout the week.

  • Falling US Treasury bond yields supported gold in face of broad USD strength.

  • Investors will keep a close eye on yields amid a lack of high-tier data releases.

What Happened Last Week

  1. The data from the US revealed on Monday that the ISM Manufacturing PMI edged lower to 60.8 in October from 61.1 in September. Nonetheless, gold stayed in a consolidation phase with investors moving to the sidelines ahead of the Fed’s policy decisions.

  2. As expected, the Fed left its benchmark interest rate, the target range for federal funds, unchanged at 0%-0.25% and unveiled that it will start reducing asset purchases by $15 billion per month starting mid-November.

  3. On Thursday, the dollar regathered its strength and registered impressive gains against European currencies but gold managed to gain traction amid falling T-bond yields. As it currently stands, the positive correlation between the dollar’s market valuation and yields seems to have weakened. More importantly, yields are having a more significant impact on gold than the dollar’s relative performance against other major currencies.

  4. Meanwhile, the Bank of England’s decision to leave its policy rate unchanged at 0.1% was another factor that weighed on global yields on Thursday.

  5. On Friday, the US Bureau of Labor Statistics reported that Nonfarm Payrolls rose by 531,000 in October, surpassing analysts' estimate of 425,000. The dollar preserved its bullish bias after this data but gold stayed resilient with the 10-year yield breaking below 1.5% on Friday

News to Follow

  1. There won’t be any high-tier macroeconomic data releases at the start of the week and investors will keep a close eye on US T-bond yields. Currently, the 10-year yield is below 1.5% and unless it manages to rebound above that level, XAU/USD could continue to push higher. On the other hand, gold could lose interest in case the 10-year yield reclaims 1.6% and steadies above that level.

  2. On Wednesday, the US Bureau of Labor Statistics will release the October Consumer Price Index (CPI) data. The Core CPI, which excludes volatile food and energy prices, is expected to remain unchanged at 4% on a yearly basis.

  3. The University of Michigan’s preliminary November Consumer Sentiment Index will be featured in the US economic docket on Friday.

Short-Term Outlook

  • On the upside, XAU/USD could target $1,810, $1,820 and $1,835$.

  • First support now aligns at $1,790, $1,785 and $1,770.