For about a week, the key drivers that have been generating underlying support for gold have flipped. Suddenly gold is facing the prospect of consistent selling pressure. The reason is down to an about-turn in Treasury yields and US dollar strength along with an improved risk appetite. We consider what could restrict a gold sell-off. 

  • The US Nonfarm Payrolls report has triggered a sharp rebound in risk appetite and a stronger US dollar (USD). This is a sour cocktail for gold bulls to swallow.
  • The only potential saviour for the gold bulls is seemingly a big risk and equities sell-off amidst a taper-tantrum.
  • The technical outlook for Gold now points towards selling into near term strength.

Nonfarm Payrolls have changed the outlook for gold

A swathe of positive surprises throughout the Nonfarm Payrolls report has sharpened focus on the timing of the Federal Reserve tightening monetary policy. The Fed being moved to tighten monetary policy due to positive economic recovery and not due to excessive inflationary pressures, gives cause for markets to be risk positive but also USD positive.

US bond yields are rising on both a nominal basis (ie. Treasury yields) and a real inflation-adjusted basis (as shown in the US 10 year Inflation Protected Securities yield).

Real yields moving higher is positive for the US economy as it suggests that Treasury yields are moving higher because investors are bullish on US growth prospects. This is positive for both risk appetite and the USD. 

However, equally, this is a terrible combination for anyone bullish on Gold. Gold is often seen as an inflation hedge. When inflation is rising (or seen as a problem), Gold performs well. Right now, inflation pressures seem to be peaking (we are expected to get a further sign of this in the US CPI data today).

The US 10 year Treasury yield moving higher is bad for Gold as they have a historic strong negative correlation.

If yields continue to climb due to further positive US data (that will further push the Federal Reserve towards tightening monetary policy) then this will continue to drag gold lower.

What could change this? A risk sell-off

At this stage, all looks positive for risk appetite (which is negative for gold). But this could change. Will we see a “taper tantrum” again this year? In 2013 as the Federal Reserve moved towards tapering its quantitative easing purchases, there was a big reaction across major markets. Risk appetite took a nosedive and gold saw a rally (after having been sold off enormously during the first few months of 2013).

The chart set of gold looks very similar to whether it was in April 2013. A huge sell-off was followed by a big rebound in July. The gold price was then choppy lower for several years after.

If this is the case and history does indeed repeat itself, then if gold breaks down below $1676 it could be on course for $1450 once more.

Technical analysis suggests medium-term pressure towards $1650

The key selling pressure through gold in the past few sessions has just begun to stabilise. However, the outlook has turned negative. The failure to reclaim the old pivot around $1750/$1765 means that this now becomes a key level of resistance.

As the Relative Strength Index unwinds from oversold (below 30) this should renew downside potential for what we now expect to be a decline towards a test of the March lows of $1676 in due course. Therefore, we look to sell into near term strength. 


Rising real yields and a strengthening US dollar do not bode well for gold. The outlook has subsequently turned bearish and we look to use near term strength as a chance to sell.