Gold Falters as US Yields and the DXY Advance, $1900 at Risk

• Gold (XAU/USD) Struggles as Rising US Yields and the Dollar Index (DXY).
• Dollar Index (DXY) in Overbought Territory but Likely to Remain Supported in a Risk-Off Environment.
• IG Client Sentiment Shows that Retail Traders are Overwhelmingly Long with 79% of Traders Currently Holding Long Positions.

Gold extended its losses in the European session as US Treasury Yields continued their advance, while the US Dollar holds above the 106.00 handle. The ‘higher for longer narrative’ has gripped markets since last week’s Fed meeting with risk assets and USD-denominated assets feeling the heat.

Looking at the daily chart above, yesterday saw the price break above a 

key area of resistance around the 105.60 handle before piercing through the 106.00 handle. The DXY does remain in overbought territory, but retracements have so far proved short-lived. The current macro picture is likely to keep the US Dollar supported moving forward.

The MAs have however crossed on the daily timeframe with the 100-day MA crossing above the 200-day MA in a golden cross pattern. This is a further sign of the upside momentum from a technical perspective and could see the DXY run toward the 107.00 level in the coming days.

US TREASURY YIELDS HOVER AT 2007 LEVELS

US Treasury yields continue to hold the high ground at 2007 levels adding further pressure on Gold prices. The US 10Y has been trading comfortably above the 2007 levels hitting a high yesterday around the 4.56% mark with the 2Y yield not advancing as much, remaining below recent highs around the 5.12% handle.

US 2Y and US 10Y Chart

Source: TradingView, Created by Zain Vawda

RISK EVENTS AHEAD THIS WEEK

As mentioned earlier we have the US Fed policymaker on the docket later today before attention turns to US Durable Goods Orders tomorrow. Final GDP numbers with an expected upward revision will be out on Thursday before the biggest risk event of the week on Friday. If anything can arrest the Dollar’s rise of late it could be US PCE data which remains the Fed’s preferred gauge of inflation. A significant drop here could see some weakness in the DXY but is not something I expect right now. I believe if we are to see any significant change in the PCE data it will likely come from the October print onward as student debt repayments begin and consumers face renewed strain.

For all market-moving economic releases and events, see the DailyFX Calendar

GOLD TECHNICAL OUTLOOK

From a technical perspective, Gold prices have struggled in the early part of the week. Having written my weekly forecast on Gold, I saw the potential for a move higher given last Friday’s daily candle close as a bullish inside bar candle. I did however highlight the technical hurdles facing Gold around the $1925-$1930 mark where we have seen a convergence of the MAs.

At the time of writing, we also have the 50-day MA looking at crossing the 200-day MA in what would be a further sign of the bearish momentum at present. The one apprehension I do have I that Gold seems to be slightly supported, given the rise in US Yields and the rise of the DXY I would’ve expected a faster decline in the precious metal.

Looking toward the downside immediate support is provided by the $1900 handle before the recent lows around $1884 come into focus. A drop below the $1900 mark could see the precious metal put in some gains before going on to take out the recent lows around $1884 which should be kept in mind.

Gold (XAU/USD) Daily Chart – September 26, 2023

IG CLIENT SENTIMENT

Taking a quick look at the IG Client Sentiment, Retail Traders are Overwhelmingly Long on Gold with 79% of retail traders holding Long positions. Given the Contrarian View to Crowd Sentiment Adopted Here at DailyFX, is this a sign that Gold may continue to fall?

For a more in-depth look at Client Sentiment on Gold and how to use it download your free guide below.

Gold BEARISH

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79% of clients are net long.

CHANGE IN	LONGS	SHORTS	OI
DAILY	10%	-16%	4%
WEEKLY	11%	-31%	-2%