Gold, crude oil looking heavy despite reversal in bond yields, US dollar

• Some markets have rebounded on the back of a reversal in US yields, but not gold or crude oil
• Gold has broken the sideways range it’s been in since the start of the year, crude oil has been terrible above the 200-day moving average.
• US retail sales, producer price inflation and consumer inflation expectation are key events to watch over the next 36 hours

Gold and crude oil are looking heavy despite a large reversal in US bond yields from the highs struck on Tuesday following the US January inflation report, unable to find any meaningful traction despite the improvement in risk appetite and softer US dollar. The inability to bounce may be sending a broader message on the path of least resistance for prices, at least in the short-term.

Crude oil, gold not benefitting from reversal in yields

Having been dumped through support at $2006 following the US inflation report, gold has been unable to rebound meaningfully over the past 24 hours despite both nominal and real benchmark 10-year US Treasury yields reversing by around 10 basis points, an unusual development given the strong inverse relationship gold has had to yields recently. Other yield sensitive assets have bounced hard but not it.

Having struggled to push meaningfully above $2040 since the turn of the month, and with momentum in RSI remaining to the downside, you get the impression gold may struggle to push back into the sideways range it was operating since the start of the year.

Gold looks heavy but not rushing in yet

However, sitting just above the intersection of horizontal support at $1980 and former downtrend resistance dating back to the record highs set in December, and having printed a minor bullish hammer candle on Wednesday, the risk-reward for entering a short trade is not compelling right now.

Rather than attempting a low probability play, it may be worthwhile keeping gold on the radar to see how the price evolves over the next two days with several major US risk events such as retail sales, producer price inflation and University of Michigan consumer inflation expectations reports set to be released. In isolation, all can and have move US yields and dollar around in recent months.

A break of $1980 would bring a test of the 200-day moving average into play. Below, there’s not a lot of visible support until you get back to $1933. Should we see a bounce back towards $2006, that will also provide a better level to either go short or long depending on how the price interacts with the former support.

Right now, my bias remains lower in the absence of a major increase in risk aversion.

Crude oil rallies fizzle above 200DMA

Crude oil looks arguably even less convincing on the charts right now, rejected twice above the 200-day moving average at resistance located at $78.40 before putting in a bearish engulfing candle on Tuesday following mixed inventory data from the US EIA. With RSI breaking its uptrend, it looks a lot easier for crude to go higher than lower near-term.

Shorts could be put on around these levels with a stop above $78.40 targeting a move to $72, where the price bounced solidly from earlier this month. Some traders may be willing to wait for a potential pop higher to help improve the risk-reward for the trade.

-- Written by David Scutt

Follow David on Twitter @scutty

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