There was an interesting reaction to the US CPI report earlier, which came out stronger than expected as food prices soared the most in 40 years. The dollar initially rallied but then slumped, while stocks did the opposite, suggesting that investors are attempting to find out whether the Fed’s rate hikes are now priced in. Interestingly, too, gold was able to hold its own well despite the stronger-than-expected CPI print and the latest rise in bond yields.
So, has gold bottomed out, or this another false hope for the bulls?
We all know why gold has been struggling recently: (1) Strong dollar, (2) rising bond yields (making this non-interest-bearing commodity less appealing for yield seekers) and (3) it costs money to store the metal.
But prices have now gotten quite “cheap” sub $1850 an announce. Gold is appearing more attractive at these levels again, especially when you consider the recent crypto carnage, falling purchasing power of fiat currencies amid rising levels of inflation and the ongoing stock market volatility.
In fact, when you measure gold against some of the other currencies, it hasn’t done too badly. At last check a couple of days ago, the price of gold in euros was up around 10% year-to-date and even higher in pound (+11%) and yen (+16%) terms. Even against the dollar, it is still hanging in the positive territory year-to-date. So, the fact that it has been able to withstand the dollar’s impressive rally to some degree, goes to show that there must be at least some demand for gold from those seeking to protect their wealth being eroded by inflation and from holding fiat currencies.
For this reason, I remain cautiously optimistic on the long-term outlook for the precious metal. With the US dollar now apparently fatigued, it is possible that the precious metal could stage a strong rally from here – especially if the bond market rout stops.
Interestingly, gold has managed to find support around a technically-friendly area circa $1835:
Source: StoneX and TradingView.com
This is where the 200-day average converges with a bullish trend. If it can manage to build a base around here and break a few resistance levels, then surely it will catch the attention of the bulls who are waiting on the side lines. However, if the trend breaks then the wait will have to continue.