Are gold prices preparing for significant leap?

Gold prices are under pressure below a key dominant bearish trendline. The US dollar could find support from the US bond yields that are resurging.

Gold is trading at $1,650.38 at the time of writing and continues flat on the day at the time of writing. The precious metal has been trading within a $1,645 – $1,660.93 range on the day so far while the US dollar is pressured towards the middle of the week which hit its lowest level since October 6, making gold cheaper for overseas buyers.

The Dollar Index, DXY, is on the front side of a key trendline, although further weakness, from a technical position below last week’s lows, should serve to support the precious metal. US yields, in that regard, remain around 4% in the 10-year yields with a daily bullish structure which should serve to prop up the US dollar.

The 2-year yield is pulling back slightly from the daily highs of 4.53%. This is weighing on the greenback this week and supporting gold as rising interest rates dim gold’s appeal as they increase the opportunity cost of holding the non-yielding asset.

Gold has also been subject to the UK’s money markets and the turmoil in UK politics this month. The UK government’s decision to U-Turn on vast unfunded fiscal stimulus seemed to boost investors’ confidence and some stability is being priced back into the gilt market.

The yield on Britain’s 10-year government bond stabilized around 3.9%, but it remains well below the 14-year high of 4.6% reached on October 12.

The good news, however, came with the new Finance Minister, Jeremy Hunt, saying on Monday that he was reversing almost all tax measures announced in the mini-budget, including cutting the basic rate of income tax from 20% to 19% from April next year.

Meanwhile, traders also took note of the Bank of England announcing that sales of government bonds are set to go ahead as planned for November 1. This rebutted an article by the Financial Times that warned that another postponement was likely because of the turmoil in the money markets. While this is important news, the main driver for gold remains with the Fed.