Gold News: Gold Market Slides on Oil Surge, Rate Hike Fears Build

Spot Gold Drops as Oil, Yields and the Dollar Hit at the Same Time

Spot Gold (XAUUSD) is down more than 1% Monday and the selling is coming from three directions at once. Oil spiked. Yields climbed. The dollar strengthened. Thin holiday volume with China, Japan and the United Kingdom all closed amplified the move. Here is what is driving the selloff and what the charts are saying.

Technical Outlook

Spot Gold (XAUUSD) is under pressure on Monday with prices still consolidating at the lower level of a major support zone. The price action suggests that buyers are still defending the market against a steep decline.

The main range is $3886.46 to $5602.23. The major support is the 50% to 61.8% retracement zone at $4744.34 to $4541.88. The market has been trading inside this zone throughout April, indicating trader indecision.

The short-term range is $4099.12 to $4891.54. Its retracement zone at $4495.33 to $4401.84 is another minor support area.

The intermediate range is $5602.23 to $4099.12. Its retracement zone at $4850.68 to $5028.04 is resistance. It stopped the rally at $4891.54 on April 17.

For those following the moving averages, the intermediate 50-day moving average is providing resistance at $4821.62 and the 200-day moving average is major support at $4282.43.

Putting it all together, I see a compressed market that just isn’t ready to move in a major way in either direction yet. While it remains in this range, traders are likely to continue to sell rallies and buy dips because there just doesn’t seem to be the volatility and volume to sustain a move at this time.

It’s a normal reaction, however, to last year’s steep rally. And history has shown us that markets usually trend about 30% of the time and move sideways 70% of the time. All you can do is control your risk. Everyone likes the fast-moving market, highlighted by traders taking out offers during rallies and hitting bids during sell-offs.

It’s easy to watch how the market moves inside the support and resistance along with the retracement zones, but that’s just price. What’s missing is the volume. We need to see gradually rising volume to take us to the next price level. Until then, rangebound and sideways is expected to be the norm.

Oil Started the Chain

Spot Brent crude oil jumped above $110 after reports hit that a U.S. warship had been struck near the Strait of Hormuz. The U.S. denied it. The oil market barely cared. I knew what was coming the moment crude started moving. Higher oil pulls inflation expectations up with it. Higher inflation expectations push rate cut odds lower. Lower rate cut odds cap gold. That chain ran in real time this morning and Spot Gold (XAUUSD) absorbed every link of it.

Yields Are Doing the Damage

The 10-Year U.S. Treasury yield is pushing to 4.418% and the 2-Year is near 3.933%. Gold pays nothing. When fixed income is offering those rates and the Fed is nowhere near cutting, capital goes where the yield is. I’ve watched this combination pressure gold before and this morning is running the same playbook. The opportunity cost of holding bullion goes up every time yields climb and right now yields are climbing fast.

The Dollar Is Adding to the Problem

The U.S. Dollar Index is strengthening and that is the third leg hitting gold simultaneously. Safe-haven flows are going into the dollar, not bullion. That tells you something about how traders are reading the geopolitical risk right now. A stronger dollar makes Spot Gold (XAUUSD) more expensive for every buyer outside the United States and that reduces demand at exactly the wrong moment.

The Fed Is Not Moving

The Fed held last week and the language was not friendly to gold. Several officials pushed back hard against any near-term easing. With oil running higher and inflation risks building, the conversation has shifted. Rate hike risk is back on the table for some policymakers. That change in tone keeps the ceiling on gold intact. Buyers need a Fed that is moving toward cuts. Right now the Fed is moving in the other direction.

What I’m Watching

The April jobs report later this week is the next catalyst. A stronger than expected number reinforces everything that is working against gold right now. A soft number gives yields a reason to pull back and hands gold a session. Until one of those breaks in gold’s favor the setup favors sellers. Rallies are going to face resistance and the support zones in the technical section are where patient buyers wait. That is where we are.

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