Gold attempts breakout as yields dip

Investors appear convinced the Fed will slow down rate hikes despite officials indicating otherwise.

Uptrend 2

Ahead of Friday’s US jobs report, bond yields and the dollar have both sold off again, and this has helped to lift gold prices near a key technical level. Will we see a breakout?

Before discussing the macro influences, here’s a daily chart of gold showing the metal is again trying to break through key resistance between $1785 to $1800:



With yields falling, I think there is a good chance we will see a bullish breakout. Following the publication of mixed data this week, investors appear convinced the Fed will slowdown rate hikes despite officials indicating otherwise. We saw a stronger-than-expected ISM services PMI report for July in mid-week, which pointed to a favourable mix of slowing inflation and some growth momentum. But the week’s other data releases have not been so convincing.


Weakening economy

Among the weaker-than-expected data releases we have seen this week, was construction spending as we found out on Monday and weekly unemployment data released earlier today. Jobless claims rose to fresh 8-month highs, while continuing claims hit their highest level since March. The weekly unemployment data has raised concerns that the July non-farm payrolls report will disappoint expectations on Friday. Earlier in the week, we saw purchasing managers reported employment contracted in July, but at a slower pace than June. Meanwhile, the closely-followed University of Michigan Consumer Sentiment survey has remained near all-time lows, while the official Consumer Confidence barometer is at a 5-year low. Even that strong ISM PMI report had some details which were not so great, with purchasing managers reporting that interest rate hikes had significantly impacted the homebuilding market, while responds in Management of Companies & Support Services said they “can feel the economy weakening.”

More signs of weakening inflation as crude sell-off gathers pace

Perhaps another big reason why US dollar bulls are being kept at bay is the falling prices of crude oil. Today saw crude oil hit levels not seen since before Russia invaded Ukraine, as WTI fell below $90 handle to trade around low-$87s at the time of writing. This is certainly disinflationary. We have also seen other commodity prices falling sharply compared to their highs seen only a few months ago. This has been reflected in purchasing managers reporting falling prices. The ISM services PMI for example showed the ‘prices’ sub-index decreasing for the third consecutive month, down by a good 7.8 points to 72.3. Similarly, the same sub index in the manufacturing sector PMI fell quite sharply from June.

What other factors will drive gold prices?

Looking ahead, Friday’s US jobs report will be the next catalyst for gold and silver prices. In the event we see weaker-than-expected jobs, or more importantly wages, then this could further undermine the dollar and underpin gold and silver, and foreign currencies. My colleague Matt Weller has written everything you need to know about non-farm payrolls report HERE.


Further out, US CPI on Wednesday, August 10 will be the next major data release. As mentioned, signs that inflation is weakening is growing, with a number of key commodity prices falling. We have also seen the prices paid sub-indices of the ISM manufacturing and services PMIs tumble, suggesting we have hit peak inflation. Let’s see if annual inflation rate will decelerate from the 9.1% recorded in June, which was the highest since November of 1981.


How to trade with

Follow these easy steps to start trading with today:

  1. Open a account, or log-in if you’re already a customer.
  2. Search for the pair you want to trade in our award-winning platform.
  3. Choose your position and size, and your stop and limit levels.
  4. Place the trade.


Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account