The rates in America continue to be a main driver of gold weakness, as the bulk of traders try to simply play the “safety trade.”
Gold
Gold markets have plunged again during the trading session on Friday despite the fact that many of you are probably out there buying gold for the idea of safety. The reality is higher rates in America mean that you get better bang for your buck holding paper. Furthermore, you also have to keep in mind that this is a market that is ignoring for the most part the war premium that despite the fact that the war continues, it seems like it is going to stay somewhat contained.
The Fed and the Bond Market
And that of course has taken some of the momentum out of this market. If we were to break down from here, and I do think that is probably more likely than not the way rates are going in America, the next order of business will be determining whether or not the $4,400 level holds and then after that you would have to ask questions of the 50-day EMA.
Unfortunately, a lot of people have bought into the idea that gold is something that you buy for safety and do not really think much beyond that and my email box is now full of people lamenting this. The reality is the market is a lot more complex, and we could even have a situation where some traders with large positions in gold that have made quite a bit of money might just simply be covering their positions in order to pay for losses elsewhere. There are a lot of things going on in the markets at all times, but for me, it looks like gold is very likely to find itself going through a significant correction. If it does, that is good news, that means I can buy it cheaper, but I am not buying it now and that is the main takeaway. This is a market that I think visits the 200-day EMA one way or the other, unless of course rates suddenly fall in America, but the Fed made it pretty clear that they remain hawkish, at least for the time being, and therefore the bond market sniffed this out before most others.