In an incredible shift in sentiment, there has been a significant decline in bond yields in recent sessions. The implications of this could be wide-reaching on major markets but right now it is signaling a safe haven bias on forex and commodities. The US dollar (USD) is holding up well despite the falling yields, amid the safe haven flow, however it is the gold price that is well set for gains in this scenario. If the USD began to turn lower, we believe that gold would be set to accelerate higher.

  • Bond yields are falling decisively, suggesting that inflation and growth expectations are being tempered

  • USD is still performing well, for now.

  • Gold retains a strong negative correlation with bond yields, and if the USD rally also started to falter, gold could climb decisively.


Falling bond yields reflect a shift in market outlook

The adage is that bond markets tend to be right. Since the middle of May, we have seen a trading range in the 10 year Treasury yield begin to tail off into a decline. This decline is now accelerating. This is also coming as inflation expectations (as measured by the US 10 year Breakeven Inflation rate) are also falling, albeit not as much.

US real yields

This suggests that not only are inflation expectations dropping, but also long term growth expectations (longer-dated bonds are a reflection of future inflation and growth expectations).

This is therefore driving “real” bond yields lower. The US 10 year Inflation Protected Securities (TIPS) are now down at levels not seen since February.


USD is holding up despite falling yields

Despite the sharp decline in real yields, the dollar is holding up well. The dollar seems to be catching a safe haven bid right now.

However, this is a situation that may not last long. The dollar and real yields traditionally have a strong positive correlation. Real yields moving lower should be negative for USD, or in the least restrict an upside move.

USD and real yields

If real yields continue to decline, then USD will struggle to continue higher over the medium term. The chart suggests that once trending moves take hold, then a negative correlation quickly reverses. 


Gold retains its strong negative correlation with yields

What is also clear, is that Gold retains a strong negative correlation with real yields. Falling yields are positive for the gold price. 

Gold and real yields

We can also see from the chart where gold is measured against the dollar, is that there is still a very strong negative correlation here too.

Gold and USD

If USD does begin to pull back lower as yields continue to decline, then the Gold price could begin to feel the benefit.


Technicals suggest key resistance is being tested 

The technical analysis of Gold (MT5 code: XAUUSD) shows that a crossroads has been reached. A swing higher in the price is now testing a key band of overhead resistance around $1810/$1825. If this resistance can be overcome then the way is open towards $1840/$1870 as the next resistance area.

Gold technical analysis

Momentum is also at a crossroads too. Look at the number of times that 50 on the Relative Strength Index has played a pivot role since January. If the RSI can move decisively above 50 this would also open upside.


We are seeing falling bond yields helping Gold to recover. However, for now, the dollar is holding up well. A failure of the dollar rally could be the trigger for a decisive gold rally.