The unexpected rise of the US dollar, and the growth by leaps and bounds of Treasury yields, drove the gold in the corner. The slowdown in the spread of COVID-19, vaccination, and expectations of a massive fiscal stimulus from Joe Biden inspire optimism about the global economic outlook, which is causing debt market rates to rise around the world. The yield on 10-year US securities soared to 1.3%, the highest in almost a year, and the rally risks continuing.

The 3-month volatility on 10-year peaked since the beginning of June. Its current value suggests that bond rates may rise or fall by 30 bp by mid-May. In the first case, we are talking about 1.6%, which will be a real shock for the precious metal. It's not for nothing that stocks of gold-focused ETFs have dropped to their lowest levels since the summer.

Dynamics of volatility of US bonds

As a rule, XAU/USD quotes move in the opposite direction with the Treasury yield. At the same time, the strengthening of the US dollar is becoming the card of 2021 due to the increase in the rates of the debt market. A double blow to the precious metal raises doubts about its ability to quickly recover.

Dynamics of gold and US bond yields

Gold is not helped by the rise in inflation expectations, measured by the break-even rate, until the peak since 2014, nor the Fed's intention to maintain the current parameters of monetary policy for a very long time. The precious metal scares the death cross on the charts in the form of a drop in the 50-day moving average below its 200-day counterpart, which portends a further decline in prices, as well as an outflow of capital to the cryptocurrency market. Bitcoin has surpassed the $50,000 mark as investors increasingly believe that a new asset class is emerging that rewards its early supporters.

The rally in Treasury yields increases the risks of a pullback in stock indexes, which is usually perceived as a deterioration in global risk appetite and increases the demand for safe-haven assets in the form of the US dollar. The vicious circle around which gold moves suggests that its troubles are not over. It is possible that the multi-year peaks were reached in 2020, and they are unlikely to be rewritten in the next 5-10 years. A similar story took place in 2011, when XAU/USD prices soared above $1920, after which the trend broke and the precious metal fell below $1100 per ounce.

In my opinion, something like this is unlikely to happen in 2021. The fact is that both the dollar and US Treasury yields have their own growth ceilings. At least not this year. Rising rates in the US debt market will hold back the recovery of GDP, which is not part of the Fed's plans. The USD index is likely to resume its decline amid the opening of the world's major economies.

Technically, the breakout of the support at $1810-1815 per ounce allowed us to form shorts in accordance with the Broadening Wedge pattern. If neither the minutes of the FOMC meeting nor the data on European business activity drops the US dollar, the downward movement in gold in the direction of the 161.8% target on AB=CD risks continuing.

Gold, daily chart