Gold prices fell over 1% on Friday to erase some of the gains made earlier in the week as a result of a surge in the U.S. Treasury yields and a stronger dollar.

Fundamental analysis: Rising Treasury yields a concern

Despite a selloff on Friday, gold prices closed higher on a weekly basis after dipping below $1,700 an ounce two weeks ago.

“While overall, gold market is bullish short-term, with expectations of a break higher through $1,760-65, caution about fresh 10 and 30-year (Treasury) auctions and the CPI report next week are keeping yields supported, keeping gold’s advance in check,” said Tai Wong, head of metals derivatives trading at BMO Capital Markets.

“Yields are driving most markets at moment, directly impacting USD and stocks, and all three matter to gold with varying impact,” he added.

The U.S. Treasury yields and the dollar gained some ground after hitting two-week lows, weighing on the bullion. The producer prices surged higher-than-expected last month, leading to the biggest yearly gain in more than 9 years and, accordant with high inflation anticipations the economy rebounds.

Fed Chair Jerome Powell said Thursday that the central bank has no plans to cut its economic support and cautioned that a resurgence in coronavirus cases could slow the economic recovery. 

“Gold’s retreat from last year’s peak is a ‘mini-correction in a longer bull market,” said Davis Hall, chief of capital markets in Asia at Indosuez wealth management.

Technical analysis: Trading sideways

Gold prices have closed a bit over 0.5% in the green last week to continue trading in a tight range after a volatile open to the new year. Gold prices recorded three consecutive monthly losses to facilitate a plunge of about 10% to the low $1,700s.

Gold weekly chart (TradingView)

In April, gold prices are trading about 1.8% higher so far as traders buying Gold look to facilitate a rebound. The main obstacle is $1,760 that is offering strong resistance and capping any potential rebound. Any pullback to $1,670 is likely to offer an opportunity to buy Gold as bulls look for a break of $1,760.

Summary

Gold prices closed last week moderately higher while the higher U.S. Treasury yields and the dollar continue to weigh on gold. The price action is trading in a tight range, signalling a potential breakout soon. 

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