You simply cannot trade gold without keeping an eye on the bond market.
Gold markets are on the precipice of making a rather large move. At this point, it could go either way, but there are a couple of scenarios that I will run you through in order to give you an idea as to what you could anticipate. Before you look at the potential scenarios, you also need to keep a couple of things in mind in order to get an idea as to where gold could go. The first thing is the US dollar, which will continue to be the main driver of where gold goes, either directly or through the bond market.
If the bond market continues to see yields drop, it is very possible that you may see a little bit of a boost in the gold markets, but there is also a certain amount of attention that needs to be paid to the rate of change. In other words, if the market is crashing as far as yields are concerned, that might see people panicking and looking for some type of safe haven asset. That does not help gold in that scenario, because not only will bonds be going up while yields go down, but it will also strengthen the US dollar and that will work against the value of gold.
However, there is also the possibility that yields will go higher and much quicker. If they do, then you have to figure out whether or not yields are giving a positive rate of return over inflation which, if they are, then it is much cheaper to simply own paper than it is to pay for storage of gold. (Remember, the real money that moves the market has to actually pay for storage.) On the other hand, if we get stabilization in rates and the US dollar falling, that would be the “sweet spot” for the gold markets to rally.
Having said all of that, if we break down below the $1700 level, we could drift all the way down towards the $1500 level where we had seen a significant amount of volume previously. If we turn around and break above the $1900 level, that would allow the gold market to continue to march higher, perhaps reaching towards the $2100 level. If we continue to see the insane amount of chop in the bond market as well as the currency markets, you may simply tread water between current levels and $1900. That being said, you simply cannot trade gold without keeping an eye on the bond market.