Gold testing key support
There’s a widely held belief that gold is inversely correlated to the US dollar. The thinking goes that the stronger the dollar, the more expensive it is for non-dollar holders to buy dollar-denominated commodities such as gold. In addition, if US interest rates/bond yields are rising relative to other countries (currencies) the dollar will also go up as it becomes more attractive to hold dollars and earn a better rate of interest. Also, higher interest rates are negative for gold as gold generally doesn’t pay interest. In fact, higher rates make it more expensive to hold the physical metal, while there’s the lost opportunity of holding gold rather than cash. These are all fair arguments, and they certainly explain gold’s recent behaviour. But do beware. Correlations work until they don’t, so it’s wise not to rely on them when you’re trading. But for now, gold and silver continue to come under selling pressure, as the dollar continues to rally. So far, support for gold is holding at $2,000 which is the lower end of a band of support between $2,000 and $2,010. If we were to see a significant break below here, both in size and persistence, then the danger is that long-term bulls bail out of the market, driving prices lower still. But if this area holds, then we may see an increase in positive sentiment which could take gold higher as we push further into the year.
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