Gold has shown remarkable resilience despite rising bond yields and a strengthening US dollar. However, with equity markets struggling in recent weeks—a development significant given gold’s positive correlation with the S&P 500 in recent years—the question remains whether haven demand will continue to support the metal. While appears bullish, a near-term correction could be on the horizon as higher yields amplify the opportunity cost of holding non-interest-bearing assets like gold. Gold Defies Bond Yields and Dollar Strength – For NowThe gold price posted a 1.9% gain last week, marking its second consecutive weekly rise despite headwinds. The precious metal’s recent rally comes after back-to-back monthly declines in December, when it pulled back from record highs set earlier in 2024. Surprisingly, this two-week recovery has coincided with a strong dollar and climbing bond yields.The of gains to seven consecutive weeks last week, now testing the 110.00 level. US bond yields also surged, with the 30-year yield hitting 5% and nearing October’s peak of 5.178%, while the 10-year yield hovers near 4.80%.Rising yields aren’t limited to the US. European and UK government bonds are also seeing yields climb to multi-year highs. Notably, the UK 10-year yield has surpassed last year’s high, reaching levels last seen during the 2008 financial crisis. Even Japan’s 10-year yield—traditionally low—has hit its highest point since 2011 at 1.20%. Higher yields globally present a competitive alternative to gold, which neither pays interest nor offers income. So Why Has Gold been Rising?Inflation fears seem to be the driving force behind gold’s resilience. Typically, a strong dollar and rising yields would pressure gold prices, but investors appear to be hedging against inflation risks. This demand, however, may not be sufficient to push prices to new records in the absence of broader supportive factors. Key Data to Watch This WeekInvestors’ attention remains firmly on the bond market and the dollar. The US dollar has benefited from shifting interest rate expectations, particularly amid robust economic data and persistent inflationary pressures. For instance, last Friday’s solid non-farm payrolls report underscored the labour market’s strength, prompting markets to delay expectations for Federal Reserve rate cuts until Q4. This week’s focus shifts to US CPI data midweek and Chinese growth figures later. Should CPI inflation persist, any remaining calls for rate cuts in Q2 will likely be dismissed, further challenging gold’s upside potential. Technical Analysis: A Critical JunctureGold is testing key resistance levels near $2690, which coincide with a bearish trendline connecting prior highs. This area also aligns with the 61.8% Fibonacci retracement level from October’s high, making it a potential inflection point.
