Gold will remain an asset to focus on, as the volatility around the $4600 level remains.
Gold
Gold continues to be very noisy during the trading session on Tuesday, and with the deadline imposed by the Americans on the Iranians later tonight, that probably isn't a surprise. The Iranians have not reopened the Strait of Hormuz, and the Americans may be forced into a situation where they have to blow up the energy infrastructure for anybody to take them seriously.
This has caused a lot of concern when it comes to energy-driven inflation, and that sends yields higher. It is really difficult to imagine a situation where inflation doesn't become a problem for most of the world, including the US to a lesser extent, and as a result, the rates remain high.
I have the 4.30% level as the most important level on the 10-year yield. I do think that if we are above there, gold is somewhat bearish. As seen during the bulk of the war, we have fallen off right along with rates rising. If we are below 4.3%, that should be somewhat bullish.
The Bond Market and Price Magnets
Notice the recent rally in gold was accompanied by a drop in yields. Granted, it wasn't a massive drop, and we didn't clear the 4.3%, at least not on a close level, but it gave us some hope. Now the question is what happens tonight if Trump does in fact bomb the Iranian energy infrastructure.
It can't be good, and that probably sends rates screaming higher as traders start to price in the idea of absolutely no oil getting through that part of the world. Think about what that does to places like Europe and more specifically Asia.
While gold in theory is a hedge against all of this, interest rates pay you to hold paper as opposed to paying to hold gold. That is what is going on here. That is why I get so many emails at the end of every day with people not understanding why gold isn't racing to the upside. It is never just one thing. Gold isn't just something you buy because a war breaks out. It depends on what is going on in the bond market.
The bond market drives everything. The $4,600 level continues to be an area that I watch very closely and I do think will continue to matter in general. I am looking at the $4,600 level more or less as a magnet for price, much like the 4.30% interest rate in the 10-year is a bit of a magnet for price. Eventually the bonds will move in one direction or the other and we will get a bigger move in gold. Until then, you are being held hostage essentially by the latest headlines.