Gold looks poised to make another run at the $4,200 mark to start the new week, with buyers finding some encouragement from falling Treasury yields and softer oil prices. While the bounce since the second half of last week looks encouraging, I would argue that the bond market will still have the final say on whether this recovery has more room to run.
Looking at the daily chart, we can see that gold has been trying to establish a base around $4,100 after the sharp retreat in late September. The drop is also somewhat defended by technical support from the 78.6 Fib retracement level around $4,117. And while buyers have managed to keep price action supported above that level, they haven’t quite found enough conviction to firmly push back above $4,200.
As such, that is making for a rather cagey technical setup at the moment.
A firm break above $4,200 would be a welcome first step for buyers, but there is the 100-day moving average (red line) to get through next around $4,239. But if that clears, buyers can at least start to take a look at a run towards the swing region around $4,300-20 next.
So, what’s stopping gold buyers from building further momentum at this stage?
Well, the recent retreat in Treasury yields has definitely afforded the non-yielding precious metal a bit of a breather. 10-year yields have slipped back towards 5.06% today but the prospect of higher inflation pressures hasn’t exactly gone away. The hotter-than-expected US inflation readings last week continue to keep the pressure on the Fed outlook with traders still widely anticipating another rate hike by year-end. While October might be off the table, Fed funds futures show that traders are pricing in roughly 90% odds of another rate hike in December.
And despite 10-year Treasury yields easing back, they are still at an elevated level considering that they are holding above 5%. As such, that does present stiff competition for an asset like gold – that offers no yield of its own.
For now, the $4,100 level remains the key downside support to watch. A break below that has the potential to expose gold towards a run at the psychological $4,000 mark again. But seeing as how the precious metal is sticking with the bounce from the end of last week, buyers may well get another opportunity to challenge $4,200 first this week. But unless Treasury yields can sustain their latest retreat, it would be tough to bet on any lasting technical breakout for gold just yet.
This article was written by Justin Low at investinglive.com.