Gold Pullback, Treasury Declines Signaling Opportunity
Tommy Humphreys | Mar 31, 2014 12:09AM ET
Gold has now retraced half of the January-March rally and Friday’s low of $1286.10 may have marked the end of the recent correction:
There is a substantial amount of evidence pointing to the idea that a short-term/intermediate-term low may have been put in place Friday:
- Friday’s session printed a spinning top candlestick which often indicates a trend reversal is at hand
- Gold moved from above the upper Bollinger® band to below the lower Bollinger band in just 9 trading sessions – such sharp declines often result in bounces of varying degrees
- Friday’s low came at the 50% retracement level of the entire January-March rally – there is also a great deal of support/resistance between $1280 and $1290
While there are strong indications in the gold chart that investors may have just been presented with a golden opportunity to buy into the recent pullback, there is another chart that gold investors may want to keep a keen eye on:
h3 30-year Treasury Bond Yield (weekly)/h3U.S. 30-Year Treasury yields have formed a rounded top during the past 8 months and a move below strong support/resistance at the 3.50% yield level could indicate that long-term interest rates have a lot further to fall.
Historically, gold and long-term interest rates have held a roughly 70% correlation (gold performs well when rates are declining and vice versa), which makes last week’s decline in yields all the more interesting. Throw in the fact that the consensus is calling for a rising rate environment resulting from stronger economic growth and higher inflation readings, and we have the perfect recipe for a stealth rally in bonds which is likely to also support gold prices.
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