If yields continue to climb, especially if they do so quickly, gold is going to suffer.
The gold markets have gone back and forth during the course of the trading session on Monday, as traders are starting to take a look at the yields again in America, and of course we have been in a downtrend for some time. The 50 day EMA is currently at the $1762 level and is sloping towards the $1750 level. That level has been resistance as of late, and it should not be surprising at all that we continue to look at that as an area that is fought over.
To the downside, somewhere around the $1675 level we see support. This is all based upon the big figure action around the $1700 level, which of course would attract a certain amount of attention in and of itself. If we were to break down below the “micro double bottom” that we have just formed over the last month or so, then I think we could break down significantly to reach down towards the $1500 level. The market has been very noisy to say the least, but the yields in America will be the main driver. If yields continue to climb, especially if they do so quickly, gold is going to suffer.
If the market were to break above the 50 day EMA, then we could go looking towards the 200 day EMA, perhaps reaching towards the $1800 level. If we were to break above the 200 day EMA and the $1800 level, then it is likely that the market would go much higher. At that point, the trend would be changed as far as I can see, and if the yields continue to collapse, that will send the gold markets much higher. Short-term pullbacks at this point in time would be buying opportunities for a longer-term position that we would be building up.
We are most certainly at a serious inflection point, because a double bottom can lead to much bigger moves, but if it gets broken through, that shows a complete capitulation and a move lower. It is all about the 10 year yield at this point, which has slowed down, so that is one thing that you can put in the “positive column” when it comes to gold. However, as long as there is a real rate of return for treasuries, gold will be sluggish.