Gold is trading a little strangely on Monday and I don’t know why. As you may know, I’m not the kind of analyst who falls back on the no-brainer “safe-haven’ argument. I prefer to dig a little deeper than that pre-1985 thinking. My work is all about gold’s relationship to U.S. Treasury yields and the U.S. Dollar.
At 10:17 GMT, August Comex gold is trading $1410.00, up $9.90 or +0.71%.
I can see why gold is being underpinned, both Treasury yields and the U.S. Dollar are edging lower. However, I had expected the rally to continue through last week’s high early in the session. Perhaps we’ll see it later in the day when the regular session opens at 12:00 GMT. It could just be a volume thing affecting the price action.
Spot market gold may be at a five- or six- year high, but August Comex gold is currently straddling its former contract high from 2018 at $1413.30. This price could act like a technical pivot today.
Although the 10-year Treasury note is trading higher, from a technical perspective, it may have hit its near-term high last week. If we’re going through a transition period from strong to weak then gold could be vulnerable because this means yields will firm over the near-term. This in turn could provide support for the U.S. Dollar index.
Traders should also note that the chances of a Fed rate on July 31 rose to 100% last week, shortly after the Fed may have hinted at a rate cut later this year. I have to ask, is it possible to price in a more than 100% chance of a Fed rate cut? So it is possible that the Treasury market became oversaturated by those betting on a rate cut.
For the rest of the session, continue to monitor the direction of Treasury yields and the dollar index. If both start to rise then look for gold to weaken since this will likely give long investors an excuse to book profits at current price levels.
This article was originally posted on FX Empire
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