Gold remains under pressure from elevated US yields, but the bigger picture continues to favour physical precious metals
Gold is attempting to stabilise after falling to two month lows, but the precious metal remains below the US$4,200 level as elevated US Treasury yields and continued volatility across global bond markets weigh on bullion.
Spot gold is trading around US$4,165, with the recent low near US$4,110 now an important level for the market to watch. While the US Dollar has eased from recent highs, elevated Treasury yields continue to provide support for the currency and limit gold’s immediate upside.
For short term traders, the next important level is around US$4,230. A sustained move above this area could ease some of the current bearish pressure and open the way towards US$4,315 and potentially the US$4,500 region.
On the downside, a break below US$4,110 could expose gold to further selling pressure, with US$4,000 and then approximately US$3,950 becoming important psychological and technical levels.
US economic data changes the interest rate outlook
Recent US labour market data has disappointed expectations and reduced speculation that the Federal Reserve will tighten monetary policy at its October meeting.
Markets are now pricing in an approximately 80 per cent probability that the Federal Reserve will leave interest rates unchanged in October, a significant change from only a week earlier.
However, expectations surrounding future rate moves remain uncertain, particularly as inflation and government borrowing continue to influence the bond market.
This creates an unusual environment for gold.
Normally, expectations of higher interest rates and rising bond yields create a significant headwind for a non interest bearing asset such as gold. But when rising yields are driven by concerns about government debt, fiscal sustainability and the enormous supply of government bonds, the relationship becomes considerably more complicated.
The bigger issue is the bond market
The current pressure on gold should not be viewed simply through the lens of interest rates.
Government debt levels across the developed world remain historically high, while governments continue to run substantial deficits and issue enormous quantities of bonds.
Higher yields can therefore reflect more than expectations of tighter monetary policy. They can also reflect investors demanding greater compensation for holding increasingly large amounts of government debt.
This distinction is important for long term holders of physical precious metals.
Gold does not depend on the financial strength of a government, the solvency of a bank or the promise of a central bank to maintain the purchasing power of a currency.
It is precisely during periods of monetary and fiscal uncertainty that the fundamental role of gold becomes more apparent.
Gold and silver may be the most important part of your holdings
For investors focused exclusively on the daily gold price, a move from US$4,200 towards US$4,000 can appear significant.
For a long term holder of physical bullion, however, the more important question is different:
How much physical gold and silver do you actually own?
Markets rise and fall. Currencies depreciate. Interest rates change. Governments accumulate debt and central banks alter monetary policy.
Physical gold and silver provide something fundamentally different — an asset outside the traditional financial system.
This is why periods of market weakness can present an opportunity to reassess rather than simply react.
If the current monetary and debt trends continue, gold and silver could become one of the most important parts of a diversified wealth holding.
The objective is not necessarily to predict whether gold will be US$4,000, US$4,200 or US$5,000 next month.
The objective is to own enough physical precious metal that short term price movements do not determine your financial security.
Technical levels to watch
Gold’s immediate resistance remains around US$4,230. A decisive break above this level could signal that the recent correction is losing momentum, with US$4,315 and then US$4,500 becoming potential targets.
On the downside, US$4,110 represents an important near term support level. A sustained break below it could see the market test US$4,000, followed by the year’s low around US$3,950.
Silver should also remain firmly on investors’ radar. Its industrial demand, monetary characteristics and historically lower valuation relative to gold make it an important component of a physical precious metals strategy.
Don’t worry only about the price — worry about how much you own
Gold and silver were never designed simply as vehicles for getting rich quickly.
Their historic role has been to preserve purchasing power and provide protection when confidence in currencies, financial markets and governments is under pressure.
That distinction matters.
A falling gold price does not change the fact that the world’s debt continues to grow. A temporary rise in the US Dollar does not eliminate the purchasing power risk associated with currency expansion. And a higher bond yield does not make government debt disappear.
For long term wealth preservation, physical bullion can serve a very different purpose from shares, bonds, ETFs or other financial assets.
Don’t worry about the price of gold. Worry about whether you own enough physical gold and silver.
Disclaimer: This article is for general information only and is not financial advice. Precious metals prices can rise and fall and past performance is not indicative of future results.
