Gold Price Futures (GC) Technical Analysis – Trader Reaction to $1638.60 Sets Tone into Close

Gold futures are trading lower on Friday, putting the market in a position to post its second consecutive weekly drop. The catalysts behind the weakness in bullion are higher Treasury yields and a stronger U.S. Dollar.

Rising yields make gold an undesirable investment because it’s a non-yielding asset. This means it doesn’t pay interest nor a dividend to hold it. And why would you want to do that when you can capture a high yield in Treasuries. Gold is also a dollar-denominated asset so when the greenback rises, foreign demand for bullion falls.

At 12:45 GMT, December Comex gold futures are trading $1635.30, down $1.50 or -0.09%. On Thursday, the SPDR Gold Shares ETF (GLD) settled at $151.47, down $0.22 or -0.14%.

Pay Attention to Treasury Yield Movement

The yield on the 10-year Treasury hit a fresh 14-year high on Friday, while the 2-year note traded in territory last seen in 2007 as signs of a recession worried markets.

The 10-year Treasury yield was last at 4.316%, after rising by nine basis points. The benchmark note has not traded at this level since 2008.

The yield on the 2-year Treasury yield, climbed to a new 15-year high of 4.639% on Friday. It was last up slightly for the day at 4.618%.

The 30-year Treasury yield, which is key for mortgage rates, jumped 15 basis points to 4.366%.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed earlier today when sellers took out the last main bottom at $1622.20. Taking out the April 1, 2020 main bottom at $1618.00 will also reaffirm the downtrend.

A move through $1738.70 will change the main trend to up. This is highly unlikely, but due to the prolonged move down in terms of price and time, the market is currently inside the window of time for a closing price reversal bottom.

Daily Swing Chart Technical Forecast

Trader reaction to $1636.80 is likely to determine the direction of the December Comex gold futures contract on Friday.

Bullish Scenario

A sustained move over $1636.80 will indicate the presence of buyers. If this creates enough upside momentum then look for a near-term surge into the short-term retracement zone at $1679.90 to $1693.80.

Bearish Scenario

A sustained move under $1636.80 will signal the presence of sellers. This could drive the market into a pair of support levels at $1618.40 and $1609.30. The latter is a potential trigger point for an acceleration to the downside.

Side Notes

A close over $1636.80 will form a closing price reversal bottom. If confirmed on Monday, we could see the start of a 2 to 3 day counter-trend rally.