Rising global bond yields and dollar sink gold and silver's surge fizzles out

GOLD bullion prices are set to end the first week of February below US$1,800, sinking below the psychological level as pressure mounts from rising global bond yields and renewed strength in the dollar. Gold spent most of week away from the limelight as its sister silver took centrestage even as the Reddit crowd fizzled out of the silver market. Gold prices had been drifting lower throughout the week since failing to break resistance at US$1,880 last Friday.

Silver prices jumped early Monday morning in Asia as pressure built up with a blistering rally last week. Silver prices had by then gained 15 per cent since messages began to circulate on Reddit last week urging retail investors to pile in. Gold prices tagged on to silver's strength but soon gave up gains.

A rally to a two-month high in the Dollar Index was bearish for gold and had helped sink the precious metal, forcing prices to retreat below the psychological level. The dollar headed for its best weekly gain in three months, lifted by growing confidence that the US economic recovery will outpace global peers.

A surge in global government bond yields also added pressure on precious metals prices. The UK 10-year gilt yield soared to a 10 month high after rate guidance from Thursday's policy meeting bolstered expectations that the Bank of England will not use negative interest rates. German bund yields followed gilt yields. US bond yields had been steadily rising throughout the week as investors positioned for a large pandemic relief package from Washington and a stabilising US labour market. The benchmark 10-year yield was up to 1.15 per cent at one time during the week.

Technical Analysis for Comex April Gold Futures (GCJ21)

After the previous Friday's failure of gold prices to trade above US$1,880, bearish traders have been slowly taking charge of gold prices. Even with the rally in silver prices momentarily exciting the gold market, prices failed to move higher than US$1,876. The short-term technical picture had been bearish ever since the April contract became the "active" month. Towards the end of the week, prices had fallen through the US$1,800 psychological support.

Gold prices have pulled back this week and drifted lower below the 200-day EMA by Friday morning, and are set to close the week on a weak note. With the dollar and bond yields ascending higher and support from silver fizzling out, the gold market looks set to drift below the US$1,767 support.

Yet the gold bull run should not be discounted. The main trend that began from US$1,000 an ounce to above US$2,000 last year has yet to run its full course, with a number of analysts maintaining their target of US$2,200 an ounce for gold this year. There are traders awaiting a good buying opportunity in gold.

The major support for the GC April contract lies at US$1,767 and then US$1,700. Immediate resistance is at US$1,880, US$1,900 followed by US$2,000.

• The writer is senior manager, commodities, Phillip Futures