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Powell Speech Allows Bonds to Surge

05 March 2021

Gold broke back down through support at US$1763 and has traded within key supports and resistance in a very neat fashion, despite the intraday noise.
The proximate cause is a continuation in the rally in nominal bond yields which hit 1.57 % and also a firm US Dollar, with the DXY (Dollar Index) rising to 91.631 after recovering from the February low of 89.683. Markets reacted to Fed Chair Jerome Powell’s dove-ish speech that described the recent run-up in yields as “something that notable and caught my attention” as permission to open the bomb-bay doors and offload more fixed income. Gold was pushed lower, as were major equity markets mainly lower, with pain felt most particularly in the tech-heavy NASDAQ and the Asia-Pacific equity markets.

Gold has reached a vital level which may prove to be a significant technical support and opportunity at the 61.80 % Fibonacci retracement level at US$1691. Look for where gold closes tonight in New York to provide support to that view.

Positioning
Gold saw light outflows in the CME Managed Money sector in the week ending the 23rd of February, offset by some short covering from Managed Money shorts. Gold ETFs saw an outflow of 585,000 Tozs. Overall, positioning hasn’t changed a great deal, and since those dates, CME Open Interest has decreased by about 1.60 million Tozs. Given the drop in prices during that period, its most likely that more longs have left the system, however the lower prices have probably encouraged recent shorts to take profit and buy back too.

Key Support
The above-mentioned retracement at US$1691 is an important level. There are signs of consolidation in today’s price action.  A close above that level in NY time would be positive. A break below this level would target US$1624.

Silver
Silver broke down below the Weekly Standard Line support. Silver hasn’t traded below this line since the end of January. Expect a move lower to continue with an important test of the Weekly Cloud top support at US$23.80 levels.

The Australian Dollar
The AUD weakened sharply after US yields shot higher and the USD strengthened accordingly. The bigger picture is that the AUD is still rejecting the January 2018 and September 2017 highs, and the short-term narrative is commodity prices have declined sharply this week. Iron Ore prices have dropped this week from the US$172.50 / mt high (Basis the SGX 62 % Fe contract.). Expect Iron ore to retest trend line support around US$155/mt. Copper has retreated from the February highs to make a low of US$8,570/mt. There is also the above-mentioned rally in the US Dollar

Support for the AUD comes in at 0.75 and 0.74.  
Gold Weekly Cloud, the break-down out of the Weekly Cloud finds support at the 61.80% retracement of the March -August 2020 move higher.


Silver
 
 
Silver Weekly Cloud
The break down below the Weekly Standard Line suggests a test of Weekly Cloud top support at US$23.80-90 levels.