It’s Not Just About the Benjamins

It’s not just about the Benjamins, it’s also about higher bond yields today. Trading to its lowest price this year, gold continues to struggle while a strengthening U.S. dollar, coupled with higher yields, continues to create fierce headwinds. Up until Tuesday’s 28-dollar drop, the lowest price for gold this year was $1,302.
 

On Tuesday, gold broke below $1,300 and the 200-day moving average. Even though the last five trading days have all contained a lower low, there are signs that the intense selling pressure has started to weaken. Diminished selling pressure is evident in the narrow range between the open and closing prices both yesterday and today

 

 Another significant indication of potential support is the fact that gold has opened and closed above $1,288 per ounce, the 0.618% Fibonacci retracement. 

 

As long as gold can remain above $1,288 per ounce on a closing basis, there is a small but real possibility that pricing has bottomed and found support. However, if gold closes below this critical level, pricing could go as low as $1,267, which is the 78% Fibonacci retracement. 

 

Regardless of the potential support at $1,288, as long as the dollar and bond yields continue to strengthen, gold pricing will remain under pressure. 

 

In an interview with MarketWatch, Carsten Fritsch, commodities analyst at Commerzbank, said, “The firm U.S. dollar and rising U.S. bond yields are continuing to exert pressure. Yields on 10-year U.S. Treasury notes have climbed further to 3.12%. The yield advantage over German government bonds of the same maturity has meanwhile reached 250 basis points. The last time it was any higher was almost 30 years ago. This argues in favor of the U.S. dollar, against the euro and also against gold, which yields no interest.” 

 

While it is evident that selling pressure has weakened, there have been no indications of a pivot, or key reversal, that would come as a direct result of a series of higher lows and higher highs on a daily chart. Unless gold begins to have higher lows, there is the real potential that pricing will sustain a further strong decline.

 

Wishing you as always, good trading,