The DSI for gold and silver both reached a 9 reading on the same day on the final day of August. Both metals proceeded to bounce for the next ten days with silver significantly outperforming gold. Since Tuesday's CPI release in the US we have seen Treasury yields soar as the market prices in additional Fed rate hike expectations. This rise in yields, and real yields, has caused gold to crack major long term support near the $1680 level:
The DSI for gold ended yesterday at a 7 reading, its lowest level since the summer of 2018 when the yellow metal was fumbling around near $1200/oz.
To wit, the current macro backdrop is far from ideal for gold bulls; a super strong US dollar and rising real yields means that the price of the currency that all commodities are priced in rises, in turn dropping the nominal price of those commodities. In order for gold and commodities more generally to put in a sustainable bottom we will need to see yields at the long end of the Treasury curve (think 10s and 30s) begin to move lower, and for the US Dollar to show signs of rolling over.
While my long term bias is undeniably bullish on gold and metals, I cannot ignore the technical implications of a break of a major long term support level and the 200-week moving average. There are still a few hours left in the week for bulls to orchestrate a stick-save and close gold back above $1680. However, the 5th test of the $1675-$1680 area in 18 months doesn't inspire a great deal of confidence.
It is ironic that hundreds of gold mining companies and investors spent most of this week gathered to discuss precious metals mining investments against a backdrop of a market that appears to be falling apart. At this point, the Fed is at risk of overtightening and causing deflation - the exact opposite mistake they made in 2021 when they were trying to spur some inflation, and instead helped to create a massive inflation overshoot to a 9% CPI. Most monetary policy has a lag effect of several months at minimum, which means that next week's Fed rate hike won't be fully felt until December or January. However, by January they may have hiked an additional 100 bps, sending the economy and markets into a full-fledged tail spin.
As a long term investor one should be unmoved by such short-term gyrations in markets. In fact, lower prices should be welcome as an opportunity to accumulate and lower one's cost basis. However, from a shorter term trading standpoint the shorter term trends cannot be ignored.
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