Stronger Dollar And Higher Yields Fueling Sell-Off
The gold market is sharply lower today as rising bond yields and a stronger dollar take their toll. Spot gold prices are down by over $25 per ounce at $1953 and change in mid-morning action. Thus far, the yellow metal has been able to hold key support in what may be an encouraging sign for the bulls. The dollar has hit 101 today, reaching its highest level in two years. The yield of the benchmark 10-Year Note is now within striking distance of 3%, the highest level seen since March of 2018.
Despite these two markets having a negative impact on the gold market, the effects have thus far been fairly limited. The gold market appears to have some underlying strength that has put it into a two steps forward, one step back type of price action. Today’s declines could be nothing more than some profit taking after the market tested and was rejected at the $2000 level.
Despite the bearish outside market action being seen today, the gold market still stands to benefit from ongoing uncertainty surrounding the war in Ukraine. The war appears set to take an even bloodier turn, and as tensions mount further, inflows into the gold market could see a substantial increase. Investors have been busy buying into gold ETFs in a sign that the investing public still sees plenty of value in the yellow metal. Gold stands to rise further in the months ahead as inflation and the war fuel risk aversion and buyers seeking out perceived safety assets. The yellow metal could rise significantly even as rates rise, the Fed becomes increasingly aggressive and the dollar also gains ground. Normally, these issues could provide a serious barrier to higher gold prices. In the current world, however, the metal stands to gain as the bullish issues outweigh the bearish issues.
The gold bulls are still in control on the daily chart despite today’s decline. The bulls are still looking for a close above resistance at the $2000 level. A move above this area could see the market rocket sharply higher in rapid fashion, putting new all-time highs within reach in a short period of time. The bears are still looking for a decline. They first want a close below the $1950 level, followed by a drop to the $1900 area. The bears will certainly need some key lower closes in order to attract more selling interest and to shake out some of the weak longs.
For the time being and likely the foreseeable future, the gold market is and will remain a buy the dips market. The bulls have the path of least resistance to take prices higher and any dips (such as the dip being seen today) are likely to be aggressively bought by the bulls. The market is likely to be tested, however, as the Fed may look to raise rates by 50-basis points at each of its next two meetings. The threat of higher rates has thus far not been a major influence on gold, although it remains unclear if such a move by the Fed could put a major dent into sentiment.