Potential signal:
- I am selling gold at this point on rallies, or on a break below the $4,000 level, with a stop at $4,100 and a target of $3,750.
- The gold markets continue to see a lot of noisy behavior at the moment, as the interest rate situation in the United States continues to make gold less attractive.
Gold
The gold market did try to rally initially during the trading session here on Wednesday, gapping a little bit to the upside, rallying a bit, and then falling pretty significantly.
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That being said, the market has really seen a lot of selling pressure, and I think this is a follow-through of the hotter-than-anticipated CPI number on Tuesday. The $4,000 level is now being approached, and if we were to break down below the $4,000 level, it's possible that the market could test those lows again from a couple of weeks ago, near the $3,870 level.
Real yields in the United States continue to pay you to hold paper
Rallies at this point in time, I don't trust, and I think the $4,200 level above continues to be a massive barrier as well. Real yields in the United States continue to pay you to hold paper, so non-yielding assets such as gold, of course, will take it on the chin. It's much easier to take a risk-free rate instead of gambling in what could be a very volatile market.
As long as real yields pay traders to hold paper, it's going to be a bit of a headwind for gold. We do have plenty of geopolitical risk out there, but quite frankly, you can see how that's worked out. It's all about interest rates at the moment.
So, with that being said, we have to watch whether or not the rates are rising or falling in the United States specifically. If they start to fall significantly, it could give a little bit of a boost to gold. Longer term, I do like gold, but as this inflation continues to be a problem and the Federal Reserve is being pressured with higher rates in the bond market, the gold market lacks any real appeal to me, and I continue to fade rallies.
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