The gold market dropped a bit in the early part of the Monday session, as we continue to see interest rates move the metals markets.
Gold
The gold market fell pretty significantly during the early hours here on Monday to break significantly below the $4600 level before bouncing. Part of what's driving this, of course, will be the interest rate situation in the United States as rates continue to rise.
The 10-year yield is above the 4.41% level as I recorded in this video, and it suggests that there will continue to be resistance built into the gold market. That being said, the $4600 level is an area that a lot of people will continue to pay close attention to, as it's a large, round, psychologically significant figure that has shown importance in the past.
Interest Rates and the Opportunity Cost of Gold
If we can rally from here, that would more likely than not be a result of rates dropping in the US as well as other places and then allowing markets to perhaps really start to build positions. Quite frankly, with everything that's going on in the Middle East, it's been very difficult for interest rates to drop significantly and with that, I think it makes a lot of sense that gold suffers.
Unfortunately, I get a lot of emails from people wondering why gold isn't rising in a state of war and it's because there is a cost of storing gold. It's a non-yielding asset and bonds, on the other hand, will pay you—in this case over 4.41% for a 10-year annually.
So, it just isn't mean that gold is not a safety play; it's just that it's a little bit difficult with rates being this high. If rates drop, gold will rally. That's what we've seen time and time again, so that's how I look at this market. I watch the 10-year yield and see what happens next. It is worth saying that it looks very strong in the rate market and bonds are selling off, making rates rise due to the fact that people believe the Federal Reserve will have to stay tighter for longer.