Blog

The gold market is higher at midday Thursday as treasury yields and the dollar have pulled back. Higher yields and a stronger dollar have been major obstacles to any upside in gold in recent months. The pullback in these markets today is giving the bulls a little reason to buy amid the recent trend lower.

It is unclear if today’s upside in gold is the start of a run higher or is simply a small relief rally as prices have trended lower recently. The smart money would likely bet on it being a relief rally, and the market could resume its trend lower on Friday or early next week. The bears are in control on the daily charts as prices hit a fresh three-week low today. The bulls must produce a close above the $1700 level in order to attract fresh buying interest. As long as the market remains below this level, it will maintain the current “sell the rallies” mentality.

The gold bulls seemingly do not know what to do as recent outside market action has weighed heavily on the metal. Rising treasury yields and a stronger dollar index have wreaked havoc on the yellow metal, and could continue to do so if present trends remain in place. It seems as if these markets keep climbing, gold may keep falling.

The gold market has not been completely broken as of yet, however, and it still remains a very attractive investment for long-term players. Once the dollar rally concludes, for example, gold could potentially embark on a rally that could not only see it recover lost ground over the last few months but could put it right back at all-time highs or even beyond. The potential for gold to take off quickly and move not only back to all-time highs but well beyond has long-term investors interested. The dollar rally has been swift and severe, but as anyone who has been around financial markets knows, moves don’t last forever. At some point, the dollar will come back to earth, and at that point it may be gold’s turn to shine.

Regardless of when the dollar may roll over, inflation remains a major concern in the meantime. Prices have risen to their highest levels in 40 years, and there has thus far not been many signs of a slow down. The price pressures are not limited to oil and energy either, but have penetrated the housing, food, healthcare and other markets. These price pressures are literally making it too expensive to live on a day-to-day basis. As consumers pinch pennies to get by, the lack of spending will likely put the economy into a full-blown recession before long.

Once a recession does hit, investors may sing a very different tune about where they put their capital to work. That could send buyers into the gold bullion market and could fuel a significant price reversal for the yellow metal.