Gold Is at Risk As Treasury Rates Rise in Response to Powell's Efforts

This environment may appear in two ways, both of which result in a lower gold price. Fixed interest assets' higher and growing nominal rates of return make them a more attractive alternative to non-yielding assets such as gold.

Second, if the Fed is regarded to be sincere in its efforts to lower gold price, market-priced inflation may decline. This results in an increase in the actual rate of return on debt investments. The real return is calculated by subtracting the nominal rate from the inflation rate over the same period.

As seen in the figure below, gold's recent gain corresponded with an increase in market-priced ten-year breakeven inflation. This resulted in a decline in ten-year real yields.

Following that gold high, the ten-year breakeven rate stayed reasonably stable, while nominal yields increased, raising real yields at the same time that gold plummeted.

If the Fed continues to see the necessity for rapid rate hikes, this might further damage gold.

The outlier to this view is the unknown effects of Russia's invasion of Ukraine, necessitating a deeper examination of the price action.

Gold, ten-year nominal US Treasury note, ten-year nominal US Treasury note inflation, and ten-year nominal US Treasury note real yield

Gold technical analysis

A double top and a head and shoulders configuration are also possible.

Gold reached an all-time high of 2,075.14 ounces in July 2020. Earlier this month, the price attempted but failed to reach it, instead reaching a height of 2,070.42, forming a double top. This inability to break higher may be seen as a negative indication.

A bearish head and shoulders pattern is developing, and a breach below the neckline might confirm it.

Risk management approaches are always critical and must be thoroughly examined.

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