- Gold risks sell-off on repeated bull 'fakeout'.
- Prices could drop below $1,300 as the equities seem to have priced-in the 10-year yield's (potential) move above 3 percent.
Gold (XAU/USD), the zero-yielding safe-haven metal, could take a beating next week, courtesy of the "bull flag fakeout" and rising Treasury yields.
Daily chart
The metal witnessed a bull flag breakout - bullish continuation pattern first on April 11 and then on April 18. On both occasions, the breakout was short-lived, i.e. prices dropped on the following day, trapping the bulls on the wrong side of the trade.
Further, as noted last week, the area between $1,350 and $1,380 has persistently capped the upside in the yellow metal for almost two years (since Brexit referendum). The repeated failure to cross the key resistance levels could have weakened the bulls. Hence, yellow metal looks set to test support at $1,308 (200-day MA) next week.
The bad news does not end here
The dollar is showing signs of life, reportedly due to a pick up in Treasury yields. As of writing, the 10-year yield is trading at 2.96 percent and a break above 3 percent is a done deal, according to the long-term bullish inverse head and shoulders breakout seen on the weekly chart below.
It is worth noting that equities seem to have priced in the potential upside break in the 10-year treasury yield (above 3 percent) in February. So, gold risks falling below $1,300 due to the absence of safe haven demand.
However, if equities report massive losses, then the safe haven bids could cap the downside in the yellow metal. Gold could also turn higher if the 10-year yield changes course and drops below 2.8 percent, although only a close above $1,380 would confirm a bullish break in the safe haven metal.
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