Gold analysis: Price stops on a weaker dollar and lower yields. The gold price is extending its time frame by trading inside a price band.
Gold, Yields, and the US dollar in question
With the US Dollar weakening and Treasury rates falling, gold is still hovering close to all-time highs.
Although there is a cost of carry for the commodity, gold can be sensitive to changes in the interest rates of other heavily traded assets. As it does not offer a return other than capital gains or losses. The decline in US real yields not supporting a move toward a new top has been the rather puzzling aspect of the gold price.
The GVZ Index shows Mildness in Gold
The nominal yield on a Treasury bond less inflation based on market prices for the same tenor is the actual yield. The yield on TIPS (Treasury Inflationary-Protected Securities) is used to calculate this inflation estimate.
The US 10-year real yield peaked at 1.35% a week ago, but it has since fallen to 1.13% this week. While gold keeps on floating about at around US$ 2,000 an oz.
Meanwhile, volatility seems to be moderate, as seen by the GVZ index‘s continued mildness under 18. Identical to how the VIX index calculates volatility with the S&P 500 equities index, the GWZ index does the same for gold.
On Thursday, attention will be on US GDP and core PCE figures. However, the (FOMC) meeting scheduled for next week may serve as the impetus for a significant change in the economy.
Technical Study of Gold
Gold has been stuck in a range between 1934 and 2049 for about six weeks, and it is still on a rising trend channel. The price grouping at the 10- and 21-day Simple Moving Averages (SMA) highlights the lack of short-term trends.
If the band is broken, sentiment may start to go in that direction. Though, there are significant support and resistance levels on both ends.
The record-setting top of 2075 in April 2020 and an unsuccessful effort to surpass it in March 2022. A peak of 2070 was set resulting in a Double Top on the topside.
On the downside, the region between 1885 and 1895 seems to be a crucial support zone. The 100-day SMA, a previous low, a crossing, and a rising trend line are all contained inside it.
What is GVZ?
The SPDR Gold Shares ETF (GLD)’s predicted 30-day return volatility is estimated by the Cboe Gold ETF Volatility IndexSM (GVZ). The GVZ is determined by interpolating between two time-weighted sums of option mid-quote values. In the above instance, options on GLD, just as the Cboe VIX Index®.
The two aggregates basically indicate the anticipated variation in the value of gold up to two option expiry dates that spread out over a 30-day period. The estimated number is annualized. Its square root is obtained, while the output is expressed in percentage points to produce GVZ.
