Rising Yields and a Stronger Dollar
The gold market is slightly higher in mid-morning trade Monday after moving lower earlier in the session. Spot prices are up some $1.40 per ounce as the market appears to be awaiting further inputs. Rising bond yields and a stronger dollar may be the story today.
The benchmark 10-eay treasury yield currently sits around 1.61%. Yields have been trending higher recently, however, and could potentially point to trouble ahead. Higher bond yields could be indicative of rising inflation and may even lead to a prolonged period of stagflation in which inflation climbs while economic growth slows. Today is the Columbus Day Holiday in the U.S. United States banks and treasury markets are closed today and these closures could make for some quieter trading today. With a very light data docket for today, investors may choose to largely sit on the sidelines and markets could end up drifting for much of the session.
The gold market seemingly wants to remain in its current comfort zone. The bulls have had little to sow on the upside while the bears have also been unable to fuel a significant downside breakdown. Which side will eventually succeed remains the topic of debate. Despite rising bond yields, the threat of Fed tapering and other bearish issues, the gold market still has numerous reasons to rise, and rise substantially. Dollar weakness, the inability of the Fed to exit its unorthodox policies, higher inflation and more are all good reasons to buy and hold physical coin and bullion.
For the patient, long-term investor, any further weakness for gold should make for an excellent buying opportunity. A breakdown below the $1670 level would likely fuel a stampede of buyers entering the market and the market could see a significant and rapid reversal back to the upside. Likewise, the market may see an increase in buying activity on any exhibitions of strength. If the gold bulls are able to take out the mid-1830s on a closing basis, for example, the market is likely to benefit from short-term traders and momentum players getting long. Current price levels do not, however, warrant much excitement and the market is really in no man’s land right now.
While markets do spend a lot or even the majority of their time in a trading range or moving sideways, such periods of consolidation do not last forever. At some point, the laws of supply and demand will dictate a significant move higher or lower. We still believe that gold will hit $3000 or $5000 per ounce in the months or years ahead. The question in our view is not if but when. This outlook makes now a great time to buy physical gold. Any dips in price from recent levels should not be viewed with a sourness but should be welcomed with open arms as an opportunity to acquire even more gold while it is on sale.