Gold is trading up 0.4% to $4,170 levels today and has managed to steady itself somewhat this week. That being said, I wouldn’t label the price action as being particularly convincing just yet.
The bigger picture is still about what is happening in the bond market. Gold was hammered at the start of the week on Monday, falling by as much as 4% to around $4,110 as US Treasury yields surged and markets continued to wrestle with the prospect of rates staying higher for longer.
And while the precious metal has since bounced back towards $4,200 overnight, Treasury yields aren’t exactly giving gold buyers much breathing room. 10-year yields remain close to multi-decade highs, hovering around 5.28% today after briefly testing the 5.30% region earlier. Even a softer US PCE price report yesterday failed to deter the bond vigilantes, leaving the possibility of another push higher in yields firmly on the table.
As a reminder, higher yields raise the opportunity cost of holding a non-yielding asset like gold. So even if the selling pressure has eased a little, there is still a fairly obvious macro headwind hanging over the market.
And the chart also tells a similar story.
On the daily chart, buyers have at least managed to defend the area around $4,100 to $4,120. That also coincides roughly with the 78.6 Fib retracement level of the July to August advance around $4,117.
But after such a sharp drop, a bounce alone doesn’t necessarily tell us that the correction is over. And the hourly chart offers more clarity on the hesitation that we’re seeing in price action at the moment.
Gold tried to recover above $4,200 earlier this week but ran straight into its 100-hour moving average (red line) before being knocked back down. And while price is recovering from the lows earlier today, it remains below that same 100-hour moving average at around $4,191 currently.
Until buyers can reclaim that level and hold above $4,200, I would still treat the latest move more as a consolidation after the selloff rather than the start of a more meaningful recovery.
Above that, the 200-hour moving average (blue line) closer to $4,260 currently will come into play as the next level to watch.
For now, the selling pressure in gold has stalled rather than decisively reversed. But as long as price remains below $4,200 and Treasury yields continue threatening fresh highs, buyers still have some work to do before this starts looking like a more convincing recovery.
This article was written by Justin Low at investinglive.com.