US 10-years Bond Yields marching higher
Fed Chair Powell had a speech on Monday. According to his words, Powell does not expect inflation to decrease in the short term but is expected to return around the target level at 2% with accommodative monetary policies, in the next three years. Powell gave a hawkish signal, saying that "if we think it is appropriate to raise interest rates by 50 basis points, we will do it". At the same time, he mentioned that FED can start reducing its balance sheet as early as May. With this comment, market expectations for the Fed to raise interest rates by 50 basis points in May increased from 52% to 60.7% and bond yields continued the rally with a steeper slope.
Gold prices were steady on Tuesday's first trading hours, but later as US Treasury yields hit multi-year highs following an aggressive inflation stance by the Federal Reserve chairman, lost $15 to test 1,922. At the same time, an intensifying conflict between Russia and Ukraine supports the gold safe-haven to pause the bears to leave gold stuck between higher yields and risk-aversion sentiment.
Earlier today, the 10-year Treasury note jumped above 2.35% for the first time since May 2019. This is while a closely watched gap between rates for two- and 10-year Treasury notes flattened further, which can be the potential economic decision. This potential crisis increases as US bond yields rise, in line with likely higher interest rates. FED has to hike the rates to fight inflation, while it will reduce the economic growth. Lower economic growth with higher rates and yields means stagflation.
While tensions in Ukraine are likely to continue, and supply-chain disruption also still is there, gold demand will be supported. Therefore, from the fundamental point of view, a downtrend in Gold is not something we can expect anytime soon.
From the technical point of view, gold had two strong supports at 1,908 and 1,877. As long as gold is trading above 1,877, bulls will have enough power to regain 2,000 US dollars and raise even higher. Breaching under 1,877 also can be the start of another downtrend, but how far it will go, depends on market risk.