Gold reached its lowest settlement level since March, moving further away from the record highs that were within reach just five months ago, with prices heading towards a so-called “death cross” that could lead to further declines for the precious metal.
“The kryptonite in gold is lifting Treasury yields and strengthening the dollar,” Edward Moya, senior market analyst at OANDA, told MarketWatch.
“Wall Street is going through a major reset on where flows are headed, and that is clearly not the way for gold,” he said. “Fixed income suddenly became attractive, killing gold’s short-term outlook.”
Gold futures for December
The price of gold fell $18.90, or 1%, to settle at $1,847.20 an ounce on the COMEX exchange on Monday. This was the lowest closing level for the most active contracts since March 9, according to Dow Jones market data. Prices lost 5.1% in September and 3.3% in the third quarter.
The last time gold traded this low was more than six months ago, when a regional banking crisis in the United States led to an influx of buyers, Alex Kubtsikevich, chief market analyst at FxPro, said in a market commentary on Monday. “Then, as now, pressure on gold came from rising US government bond yields and a reassessment of expectations for higher long-term interest rates.”
The decline in gold prices came after their rise in early May to $2,055.70, the second highest settlement ever, and the highest for the most active contract since August 6, 2020.
Gold prices now appear to be close to reaching a “death cross” – a technical term that generally refers to a downtrend, one that occurs when an investment’s short-term moving average falls below its longer-term moving average. The 50-day moving average for December gold was at $1,948.34, while the 200-day moving average stood at $1,982.13 on Monday, FactSet data showed.
Moya said gold is in a “danger zone” and will fall below the $1,800 level if the 10-year Treasury yield rises above 5%. In Monday’s trading, the yield on 10-year Treasury bonds (BX:TMUBMUSD10Y) rose
It was at 4.674%, up from 4.572% on Friday, after the US government avoided a weekend shutdown.
However, gold is “oversold in the short term, creating the potential for a corrective bounce,” said FxPro’s Kubtsikevich.
He said that gold “accelerated its decline last week by breaking the support of the downtrend channel in recent months.” “This acceleration in gold’s decline may be a sign that the decline is coming to an end, but it is still a case where it is better to hold off a bit on the rally rather than buy.”
Moya expects gold to have its “moment in the sun when it peaks in… [U.S.] The dollar is where it belongs.”
On Monday, the ICE US Dollar Index rose
The DXY dollar index rose 0.6% to 106.87, its highest level so far this year. A stronger dollar could make dollar-denominated gold more expensive for foreign buyers.
“A rise towards $2,000 seems unlikely at the moment” for gold, Moya said. However, “the upside may eventually target the $1,925 area.”
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