Gold Prices Plunge As Easing Market Panic Boosts Bond Yields

Gold prices sank to the lowest level in 19 months as the US Dollar held onto its crisis-inspired gains while Treasury bond yields recovered. That undercut support for non-interest-bearing assets epitomized by the yellow metal.

Rates edged up as the dust began to settled after Friday’s bloodletting in emerging markets spilled over into broader risk aversion. Turkey’s central bank announced an emergency liquidity boost, calming investors’ frazzled nerves (at least for now).

Crude oil prices swung lower alongside US shares as EM-related worries resurfaced in the early part of Monday’s Wall Street session, hitting a two-month low. The move proved short-lived however as EIA drilling productivity data showed output from new wells is expected to dip in September.

GOLD MAY EXTEND DROP, API INVENTORY DATA DUE

Looking ahead, futures tracking the FTSE 100 and S&P 500 equity benchmarks are pointing to continued recovery in risk appetite as London and New York come online. That may continue to pull bond yields higher, pressuring gold downward.

The durability of the risk-on recovery is nevertheless at the mercy of incoming news flow. A fresh batch of worrying headlines from Ankara, Moscow or other emerging markets flagged as potential trouble spots in recent days (like India and South Africa) could see sentiment deteriorate anew.

As for crude, API inventory flow statistics are in focus. They will be sized up against forecasts calling for a 2.77 million barrel drawdown to be reported in official EIA figures due Wednesday. If API reports a larger outflow, prices might rise. Needless to say, a smaller one may send them downward.

GOLD TECHNICAL ANALYSIS

Gold prices plunged through support marked by the July 2017 low at 1205.02, suffering the largest one-day loss in two months. The next layer of support is at 1176.57, the 38.2% Fibonacci expansion, with a daily close below that exposing the 50% level at 1158.44. Alternatively, a move back above 1205.02 – now recast as resistance – opens the door for a retest of the 1236.66-40.86 area.