Gold Forex Signal: Buy Signal Possible Above $4,200

Potential signal:

• IF gold breaks above $4200, and rates (US10Y) are dropping, I will buy with a $100 target, and a $50 stop.
• Gold continues to fight higher rates and technical breakdowns as inflation and energy problems weigh on demand.

Gold

The gold market continues to find itself digging into a major demand zone between $4,200 and $4,000, and it is more of a slow grind to the downside as interest rates in America continue to stay elevated. Quite frankly, that is something that I don't think is going away easily, and therefore it does provide some problems for the gold market.

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It is a non-yielding asset, and if that's going to be the case with higher rates, it makes sense that people would prefer to have the yielding asset, the bond, instead of gold. And that's been the story for a while now.

Now, the main reason for higher rates has to do with energy

Although there are other types of inflation right now, elevated energy costs in the United States are the main reason for higher rates. With that being the situation, it does make sense that gold will continue to suffer at the hands of a guaranteed return.

If we were to break down below the $4,000 level, the market could unwind pretty rapidly. A rally from here could open up a move towards the 50-day EMA, which is essentially $4,325, and possibly even higher.

So when I look at this market, I recognize that the state of play between gold and yields in the bond market remains very tight, and I'm watching the bond market for signals. If we start to see the bond markets drop and gold breaks back above $4,200, I might be interested in taking a small short-term buy position here.

I would not sell gold, at least not until we get below $4,000. That probably means very high rates at that point. We'll have to wait and see. Again, rates are elevated, but they're not accelerating, so that kind of keeps us in a moment of stasis here.

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