Gold Builds Range After Descending Triangle Breakdown

Gold Talking Points:

• The gold sell-off has continued as Treasury yields spiked, even with equities holding up fairly well on a relative basis.
• While short-term price action retains a bearish tint, the bigger question is bullish defense of the $4k level which brings to the matter the prospect of central banks and large institutions shifting reserves into gold and from fiat currencies.

Last week started with a statement move in gold as prices broke down aggressively to set a fresh monthly low. With Core PCE on the calendar for Wednesday and NFP on Friday, the market was not without motive, although it was the continued surge in Treasury yields that played a larger role. And despite a seemingly open door for bulls to push a retracement up to the $4250 level, sellers continued to swat down rallies and, at this point, prices have been range-bound since the breakdown move at the start of last week.

Gold Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Daily

From the daily chart we can get better view of that range and, as yet, a lack of motivation from buyers to kickstart a rally. But, also of interest is just how tight that move between bonds and gold has been. At the bottom of the below chart I have a correlation coefficient plotted between gold and 10-year yields, and while this waxes and wanes, of late, it’s been close to as inversely correlated as it will normally get. This shows how gold has been selling off as yields have been rising and it makes sense with the current macro backdrop. But this also helps to highlight how softness in yields or some element of pullback there could help gold to muster some strength.

Gold Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro