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Bullion could rise further due to rising inflation and breakeven rates

By on November 11, 2021 0

Gold, XAU / USD, Inflation, Treasury Yields, Break-even Rate – Talking Point

  • Gold bulls charged after hotter-than-expected CPI print
  • Rising Breakeven Points Good for Long-Term Bullion Outlook
  • XAU / USD breaks key resistance on last upward load

Gold prices skyrocketed overnight as traders digested a feeling of much higher-than-expected inflation in the United States. October’s Consumer Price Index (CPI) revealed the highest annual inflation rate in more than 20 years, at 6.2% year-on-year. This is an increase of 0.8% from last month’s annual reading. Analysts had expected a figure of 5.8%.

Traders bought gold despite a corresponding rise in US Dollar and Treasury yields, which generally work against XAU prices. The Treasury rout was barely contained in the United States, with spillover effects seen in major government bond markets. The upward pressure on Treasury yields continues throughout Thursday’s Asia-Pacific session as gold prices stabilize.

Real yields have fallen, suggesting that longer-term inflation expectations could metastasize into a larger segment of market holdings. The inflation-protected 10-year Treasury note rate hit a new post-pandemic low after the release of the CPI. This widened the deviation from the nominal return, a measure called the break-even expectations for inflation over the next 10 years.

Since gold is viewed as a hedge against inflation by a large number of traders, this may have been one of the catalysts that drove prices higher. XAU bulls may believe that the Fed has also fallen behind on inflation, which would likely lead the central bank to catch up. This leaves the door open to a period of stagflation, as policymakers should scramble to avoid soaring inflation and quickly raise rates.

Higher rates do not bode well for gold prices. However, the aforementioned scenario would also likely cause a stock market rout. Increased volatility has traditionally been a tailwind for gold prices, with investors turning to the yellow metal to diversify and contain the effects of volatility on their portfolios. This type of outlook is playing pretty well for gold.

Gold technical forecast

XAU / USD broke above key resistance overnight, with prices moderating just above the 1840 grip thanks to early trading in APAC. An upward recovery will target the psychologically imposing 1900 level, which has not been traded since June. The old trendline support could be resistance above. In the event of a pullback, the bulls would seek to defend the resistance level recently crossed around 1830 – an area that served as resistance from July to September.

Gold daily chart

Chart created with TradingView

— Written by Thomas Westwater, Analyst for

Contact Thomas, use the comments section below or @FxWestwateron Twitter

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