Gold again looks weak on Tuesday, despite the fact that it gapped higher. The inability to hold gains is something that traders must be aware of at the moment, as inflation in the United States will keep real rates positive.
Gold
The gold market gapped higher to kick off the trading session but has since collapsed, showing signs of extreme weakness after CPI came in hotter than anticipated.
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With that being the case, this is a market that I think is still threatened every time it rallies. We obviously, at least in my opinion, have a major barrier in the form of the $4,200 level. The $4,200 level is an area that I think a lot of people will be watching, as it was significant support and resistance multiple times in the past. It was also the top of a big support level that really extended all the way down to $4,000.
Interest rates continue to climb, and the 10-year yield is now racing towards the 5% level again. Ultimately, though, this is a market that I think would need to clear the $4,250 level before you can even begin to have the conversation of getting bullish. Interest rates continue to climb, and the 10-year yield is now racing towards the 5% level again, which in the past has caused some problems.
Real rates matter
Worse is the fact that real rates actually pay you to hold paper now. Government debt pays above inflation, and has for a while. So, a lot of traders are looking at that and preferring to have a guaranteed return over gold, which of course, pays no interest or dividend.
Ultimately, I do like gold over the longer term, but it's still in a corrective phase. If we break down below the $3,900 level, we could be looking at a gold market that could drop all the way to $3,500 based on the technical analysis. Either way, there's nothing even remotely positive about this chart at the moment.
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