It’s a brand new week but same old struggles for gold. The precious metal is kicking things off with another leg lower today, falling below $4,200 to its lowest in almost eight weeks. That as the pressure from the bond market continues to build.
This time around, there is a more meaningful technical break to go alongside it.
For the better part of the past two weeks, we’ve seen price action consolidate between $4,240 to $4,400. Buyers have stepped in to defend the $4,240 floor on just a few ocassions, with that lining up with the 61.8 Fib retracement level at around $4,241 on the chart. But now, that floor looks to be giving way and is leaving gold trading at its lowest level since early August.
That continues to reinforce the narrative that the technical picture remains more clearly in favour of sellers at this juncture.
On the latest break lower here, there’s not too much else standing in the way of a steeper decline towards the bigger psychological and technical target at $4,000 next.
On the flip side, buyers now need to reclaim $4,240 first before we can start talking about repairing the damage. Above that, the $4,300 to $4,330 region will be the tougher hurdle.
All that being said, the chart is only half the problem for gold at the moment.
The bigger headwind remains surging Treasury yields. 10-year yields briefly touched 5.23% last week, its highest level since 2007, and is pushing up to around 5.20% today after settling around 5.17% at the end of last week.
In going back to basics, that is a problem for gold as the precious metal does not pay a yield. So, as returns on supposedly risk-free government debt rise, the opportunity cost of holding the gold becomes more and more difficult to ignore.
And higher oil prices are also feeding back into that story. The breakdown in US-Iran diplomacy hopes is starting to push oil prices up again and that is reinforcing inflation concerns. In the bigger picture, that just adds to expectations that the Fed may still have more tightening to do. And in turn, it also feeds into a stronger dollar and that just adds another layer of pressure on bullion.
It’s all about the rates trade at the moment for broader markets, and that includes for gold.
As long as Treasury yields keep climbing and gold stays below the broken $4,240 area, the path of least resistance seems to be for a move lower for the time being.
This article was written by Justin Low at investinglive.com.