Gold markets have been noisy in the month of April, but unfortunately, I don’t think May will be any different.
Gold
Gold markets have been very noisy during the month of April as the $4,600 level has offered support, but we've seen resistance near the $4,950 level. Gold continues to be very noisy, and I think that will be the story going forward as the interest rates in America continue to be a major influence.
The 10-year yield breaking above the 4.30% level is a bit of a problem and we have been pretty sustainably above that level, which causes quite a bit of noise and downward pressure in this market. With that being said, I do think that gold probably has a little bit of softness in the month of May, but I don't necessarily think the market falls apart.
The Impact of Treasury Yields
I think this is a bit of a healthy pullback after what had been a very strong run higher until we started to see a bit of a pullback in the month of March. Now a little bit of sideways consolidation probably makes a certain amount of sense but watch the 10-year yield because when it rises significantly above 4.30% that really puts pressure on gold.
I think that's going to be the biggest clue in the month of May is where rates are and rates unfortunately are reacting to the latest headlines coming out of the Middle East. There are a lot of concerns that the Federal Reserve will have to stay extraordinarily tight due to a potential energy shock coming and, in that environment, you would have a very difficult time seeing gold rally as it is a non-yielding asset.
That is a phrase that you probably need to get familiar with because as long as money managers can make a decent return in the bond market, they won't be bothered to start chasing gold. Conversely, if gold drops significantly below the 4.30 level that could send gold flying to the upside and perhaps looking to the $5,000 level.