Gold has reached its lowest settlement since March, moving further away from the record-high levels that were within reach just five months ago, with prices headed toward a so-called “death cross” that could lead to further declines for the precious metal.
“Gold’s kryptonite is surging Treasury yields and a stronger dollar,” Edward Moya, senior market analyst at OANDA, told MarketWatch.
“Wall Street is having a major reset on where flows are going and that is clearly not gold’s way,” he said. “Fixed income is all of sudden attractive and that killed the short-term outlook for gold.”
December gold futures
fell $18.90, or 1%, to settle at $1,847.20 an ounce on Comex Monday. That was the lowest most-active contract finish 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 at such a low was over six months ago, when the U.S. regional banking crisis triggered an influx of buyers, Alex Kuptsikevich, FxPro senior market analyst, said in market commentary Monday. “Then, as now, the pressure on gold came from rising U.S. government bond yields and a reassessment of expectations for higher long-term interest rates.”
The drop in gold prices followed a rise in early May to $2,055.70, the second-highest settlement on record, and the highest for a most-active contract since Aug. 6, 2020.
Gold prices now look to be closing in on reaching a “death cross” — a technical term that generally indicates a bearish trend, one that occurs when an investment’s short-term moving average falls below a longer-term moving average. The 50-day moving average for December gold was at $1,948.34, while the 200-day moving average was at $1,982.13 on Monday, FactSet data show.
Gold is in the “danger zone,” and it will plunge below the $1,800 level if the 10-year Treasury yield rallies above 5%, said Moya. In Monday dealings, the yield on the 10-year Treasury
was at 4.674%, up from 4.572% on Friday, after the U.S. government averted a weekend shutdown.
FxPro’s Kuptsikevich, however, said that in the short term, gold is “oversold, creating the potential for a corrective bounce.”
Last week, gold “accelerated its decline by breaking the support of the downtrend channel of recent months,” he said. “It may well be that this acceleration in gold’s decline is a sign that the fall is nearing its end, but it is still a case where it is better to be a little late to the rally than to buy in.”
Moya expects gold to “have its moment in the sun when the peak in the [U.S.] dollar is in place.”
On Monday, the ICE U.S. Dollar index
was up 0.6% at 106.87, around the highest levels of the year so far. Strength in the dollar can make dollar-denominated gold more expensive for foreign buyers.
“A rally towards $2,000 seems unlikely right now” for gold, said Moya. However, “upside could eventually target the $1,925 region.”