- Gold price rangebound between $2470 and $2531.81
- Gold has not demonstrated a strong relationship with USD or US bond yields recently
- US inflation reports and bond auctions could influence gold if they generate significant moves in FX and rates markets
Gold overview
Gold is moving to its own tune, not exhibiting the relationship with the US dollar and US bond yields often seen going back decades. While there’s always the risk those key drivers could reassert themselves again this week, if they don’t, it may put more emphasis on technical signals and geopolitical developments than financial market movements.
Gold technical picture
Gold is rangebound on the daily chart, sandwiched between $2470 on the downside and $2531.81 on the topside. Momentum indicators like RSI (14) and MACD are providing mildly bearish signals, although not to the point where you have high conviction on directional risks.
Zooming out a touch, you can see the price remains in an uptrend dating back to late June, attracting plenty of support in the subsequent months thanks to the proximity of the 50-day moving average.
Given how either side has been respected over recent weeks, range trading is favoured until see a break below $2470 or break above the record highs.
Gold ignoring historical drivers
As for key drivers, gold has no strong relationship with the US dollar index (DXY), 10-year US Treasury yields, US 10-year inflation-adjusted TIPS yields, US 10-year breakeven rates or the crude price over the past month with correlation coefficient scores ranging from +0.3 to -0.6.
The strongest positive relationship I could find was with AUD/USD, but I doubt the gold price has suddenly become a high beta play on the global growth outlook and risk appetite. With no obvious driver, that’s why I’m placing more weight on technical signals that anything else this week.
Managing event risk
If the inverse relationship with the US dollar index or positive relationship with US Treasury yields become evident again, keep a close eye on US consumer and producer price inflation released on Wednesday and Thursday, along with Treasury auctions for three and 10-year notes and 30-year bonds on Tuesday, Wednesday and Thursday respectively.
The ECB rate decision on Thursday could also impact gold through FX and rates channels, although it would likely require a significant hawkish or dovish shock to meaningfully impact the gold price.
-- Written by David Scutt
Follow David on Twitter @scutty
