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Gold markets have spent most of July going back and forth as we continue to see a lot of noisy behavior out there, and that is primarily driven to the noise coming out of the Middle East, with traders having to worry about the war and what that could do with inflation, especially in the energy part of the equation.
It is continuing to see a lot of volatile moves in the bond markets, and that is worth watching. As rates are higher than they've been for a while, it does provide a little bit more in the way of yield in opposition to the gold market, which of course offers no yield.
So, with that being said, the market is likely to continue to see a lot of questions asked about what to do next with the overall allocation of capital to gold or not, and I do think that we are at a major inflection point. The $4,000 level makes for a good large round number and good headlines, and that I think is something that we need to watch very closely.
Interest Rate Sensitivity and Key Technical Targets
The next month in August will be highly sensitive to interest rates, and if they do start to climb again, that could work against gold. I suspect we are essentially being held hostage by a few people in Washington, D.C., and Tehran as far as where we can really allocate capital safely.
Longer-term, I do like gold, but I also recognize that this is a market that will continue to be one that is probably focused on shorter timeframes as we basically traded in a $200 range for the entirety of July.
But if we get some type of shock, higher rates for example, that could send gold below $3,900 and maybe reach towards $3,500. If we were to turn around and break above the $4,200 level, then you have the possibility of the market going higher, maybe to the $4,600 level. That would almost certainly have something to do with rates collapsing.
Unfortunately, the world still sits on the sidelines and watches the Middle East, which means volatility is probably the only thing that you can count on.
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