These market conditions might look like the result of a reduced risk aversion. However, they could be the result of optimistic expectations regarding the rapid recovery of the North American economy and the global economy.
During the weekend, various statements from members of the Federal Reserve reiterated their commitment to keeping interest rates low for a long time. But there are also more and more voices, including former members of the Federal Reserve and prestigious investors such as Warren Buffet and Mohamed El Erian, who believe that the Federal Reserve will not be able to maintain its ultra-expansionary monetary policy due to the rapid recovery of the economy, driven by fiscal policies, and inflation.
For the moment, U.S. Treasury Bonds yields remain stable, with the 10-year benchmark around 1.61%. Still, there are increasing expectations that they will resume their upward path, potentially reaching levels of 2%.
This has a positive effect on the U.S. Dollar, which today is strengthening against all its peers. USD/JPY regains all the territory lost during the correction from recent days and is heading towards the next resistance level located at 110.87, above which it could make its way towards the main resistance at 112.30.
The North American stock markets are also showing signs of vulnerability in the face of a potential scenario of rising interest rates and inflation. Losses are led by the Nasdaq technology index, which has already shown trend reversal patterns.
Again, we return to the market model in which GOLD could benefit from the decrease in real interest rates because of expectations surrounding an inflationary rebound.
Indeed, a stronger dollar does not favor the precious metal due to its negative correlation. Still, the movement of the last two days may anticipate greater advances from a technical perspective.
After this latest rally, it is near a vital resistance zone located around 1800 where the 100-day SMA line passes, above which the next level is 1816 - the beginning of a new upward trend.
Sources: Bloomberg, reuters.com.
