Gold simply cannot seem to catch any momentum to the upside, as real rates in the United States continue to rise. As long as this is the case, the gold market will struggle.
Gold
The gold market has pierced the $3,900 level and, quite frankly, gold cannot catch a break. Real yields in the United States continue to pressure gold as traders get paid to hold paper. Quite frankly, if you can make a guaranteed return of 2%, 3%, or 4% a year and take absolutely no risk, that is a trade that most professionals are willing to take. Contrast that with the volatility that's inherent in the gold market, and you can see exactly what's happening here.
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There is demand for gold out there by certain central banks and the like, and of course, gold will serve its function down the road. But this breakdown during the trading session on Thursday is significant. We have broken to a fresh new low. Gold simply cannot hang on to gains.
We would need to see this market break significantly above the $4,200 level to change anything at this point.
At this point, it still looks very much like a fade-the-rally type of scenario. I just don't think it has that kind of momentum.
When you look at longer-term charts, you can make an argument for pretty significant support right around $3,500. With the way this is breaking down and the way rates are going, that may be where we end up before it's all said and done.
Again, I don't necessarily think we're going to collapse, but this is just a gradual sell-off in gold as rates remain very pesky. There is a risk premium to gold, of course, and if traders start to look for portfolio protection, that could be one place. But with these rising real rates, it just makes more sense to find that protection in the bond markets right now. As a result, this is what you're seeing. Gold continues to look very bad.
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