In today’s market, there is a strong tendency to sell everything, except for oil, which is a rare exception. This is due to the statement made by Fed dove Neel Kashkari, who suggests that there is a 40% chance that the Fed hiking cycle will continue this year and interest rates may need to rise significantly to control consumer spending and bring inflation back to target. As a result, investors are turning to safer options such as bonds, which offer higher yields than gold. The widening spread between bond yields and gold yields is unfavorable for gold in a risk-averse environment.
Despite these challenges, there are some factors that may support gold. Countries like BRICS and those unfriendly to the US are buying gold, and the weakness in the yuan is making gold more attractive in China. These factors have helped maintain gold at relatively high levels this year, and it remains near record highs against several currencies. However, against the US dollar, gold is facing a downtrend, with a fourth consecutive lower high. If gold falls below $1900, it would reach a one-month low, with the key level to watch being $1884. A breakdown below this level could lead to further declines with limited support until the low $1800s.
While gold may be a favorable investment when the Fed changes its stance, the exact timing of such a shift is uncertain. Additionally, gold typically experiences a seasonal rally starting in November. Therefore, being patient and waiting for better opportunities may be a wise strategy for now. Ultimately, there is a demand for safe havens, as evidenced by the substantial influx of $16 billion into the TLT long-term bond ETF this year. However, the impact of falling interest rates on gold is yet to be seen.