GOLD Prices return to close above summer highs at $1861

Gold prices have rebounded sharply in recent sessions on the back of a decline in real yields after the latest Fed meeting. Indeed, real Treasuries yields have fallen sharply since Wednesday of last week, with the longest 30- and 10-year maturities each losing 20 bps to return near their lowest levels of the year.

Falling real rates benefit the gold price, as investors prefer precious metals when asset yields adjusted for inflation expectations fall.

Nevertheless, it is hard to imagine real rates being lower than they were at the peak of stagflation fears this summer when the 10-year real yield reached -1.2% (compared to -1.1% currently). So real rates don't seem to have much room to fall, although in theory there is no floor.

The consumer inflation numbers released this afternoon will most likely be key for gold prices as they should also influence their inflation outlook. A higher-than-expected inflation rate would reinforce fears of stagflation, which would put additional pressure on real rates, while a lower-than-expected rate would reinforce the scenario that inflation is only transitory, which should reduce the inflation outlook and thus support real rates.

In terms of technical analysis, gold is back to testing key resistance at $1,860, which corresponds to the latest downswing back in mid-June. Furthermore, gold managed to clear above the 1,834 level with ease, an area that has been blocking it since the beginning of the summer.

If traders are looking to secure their profits, it should be at this resistance level. Otherwise, a break of these two resistances would be important bullish signals that would pave the way for further upside towards the June high at $1916.

(Chart Source: Tradingview 11.11.2021)

Below $1834, the risk/reward ratio favors sellers. The price of gold could retreat to the short-term bullish oblique that runs through the August and September lows.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.