fxs_header_sponsor_anchor

Analysis

Gold rally runs out of steam

Gold is experiencing profit-taking after an impressive rally following the escalation in the Middle East.

The cost of a troy ounce of gold was down to $1955 at the peak of the European session on Tuesday, after a two-week rally from $1811 to almost $2000 since the 6th of October.

This week's opening with a gap down was a sign that the market had built considerable profit-taking demand. The gap was closed during the day, but the decline continued Tuesday.

The market blew off steam just as the daily RSIs hit overbought levels. If this is not some short-term market noise, a full-blown correction of the latest rally would take the price to $1925, up to 61.8% of the initial advance.

Theoretically, there is a more bullish scenario for gold. According to this, today's pullback to $1955, or 76.4%, has already removed some overbought conditions and spurred enough buying demand to increase the price.

Looking at other markets, we continue to believe that the selling of gold is not yet complete. US 10-year Treasury yields approached 5% at the end of last week and briefly breached that level on Monday. But this attracted buyers into bonds, making the case for a yield top (price bottom).

While we often hear that rising government bond yields are bearish for gold, it is unlikely that significant capital will buy into a falling market to avoid catching a falling knife. Signs of a bottom forming could trigger an essential shift in the overriding trade, triggering a capital flow out of gold and into bonds.

The timing of this shift is also appropriate, as it is often in October that we see a change in long-term trends with the start of a new fiscal year. A year ago, such a shift was the stock market reversal and the beginning of a weakening dollar. And now it could be the emergence of interest in beaten-down long-term US bonds to the detriment of gold and possibly equities, whose yields are now lower than most debt market securities.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.


RELATED CONTENT

Loading ...



Copyright © 2024 FOREXSTREET S.L., All rights reserved.