Gold should be getting hammered but isn’t - that’s interesting

• The US dollar has hit six-month highs
• Real and nominal benchmark US bond yields sits at multi-decade peaks
• Remarkably, gold is hanging tough despite the tough environment

Gold should be getting hammered right now

The US dollar wrecking ball is swinging wildly, soaring to six-month highs. At the same time, nominal and real US bond yields are scaling multi-decade peaks, adding to downward pressure in riskier asset classes, especially the kinds offering low or no yield. It’s the type of environment in which gold should be on the canvass being given the standing eight count by shorts. But it’s not. That’s interesting.

While haven buying may be a factor as investors seek safety given the threat of a broader and deeper pullback in other asset classes, gold really should be getting taken to the cleaners given it provides no yield and is priced in a currency that’s charging higher.

If gold can’t weaken substantially in these conditions, when will it? And what happens when the tide eventually turns, with the US dollar and bond yields turning lower? It will happen eventually. Based on how it’s faring when conditions are historically terrible, the sky could literally be the limit. And let’s be honest; with production costs surging, it’s not getting any cheaper to pull gold out of the ground.

Gold a buy-on-dips prospect?

Against my natural instincts, gold looks like a buy on dips play right now, rather than sell on rallies prospect. I wouldn’t be rushing in but pullbacks towards the 50-week moving average – a level it has respected on numerous occasions in recent years – may offer longs a decent entry level to position for potential upside. A stop below lower downtrend support currently found around $1875 would protect against renewed downside. On the upside, the first target would be the top of the current trading range around $1970.

-- Written by David Scutt

Follow David on Twitter @scutty