- Gold continues to rise despite bond yields and dollar strength, driven by inflation concerns.
- Key data releases this week could determine whether gold’s rally holds or faces a correction.
- Technical levels show gold at a critical juncture, with potential support and resistance shaping its near-term path.
- Kick off the new year with a portfolio built for volatility and undervalued gems - subscribe now during our New Year’s Sale and get up to 50% off on InvestingPro!
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 long-term prospects for gold appear 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 Now
Gold 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 Dollar Index extended its streak 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 United Kingdom 10-Year yield has surpassed last year’s high, reaching levels last seen during the 2008 financial crisis. Even Japan 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 Week
Investors’ 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 nonfarm payrolls report underscored the labor market’s strength, prompting markets to delay expectations for Federal Reserve rate cuts until Q4.
This week’s focus shifts to the 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 Juncture
Gold is testing key resistance levels near $2690, which coincides 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.
If selling pressure resumes, initial support lies around $2650, defined by a trendline established since mid-2023. A break below this could signal a broader correction, with subsequent support levels at $2600, $2530, and $2500 in sight.
Conversely, a potential break above the $2710-$2725 resistance zone (shaded red on the chart) could pave the way for a new record high, potentially surpassing 2024’s peak of $2790. This is not my base-case scenario.
So, while gold has proven its resilience against rising yields and a stronger dollar, its near-term trajectory faces hurdles. Inflation concerns may continue to support prices, but with bond yields offering attractive returns, gold’s appeal could wane unless fundamental shifts emerge. This week’s economic data will be critical in determining whether gold sustains its recent rally or succumbs to renewed selling pressure.
***
How are the world’s top investors positioning their portfolios for next year?
Don’t miss out on the New Year's offer—your final chance to secure InvestingPro at a 50% discount.
Get exclusive access to elite investment strategies, over 100 AI-driven stock recommendations monthly, and the powerful Pro screener that helped identify these high-potential stocks.
Click here to discover more.
Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.