Tuesday, October 24, 2017

Gold Bulls - Be Cautious Now

The prices of US 10-year treasury notes are at an inflection point now:

source: Stockcharts.com

The chart above shows gold prices plotted against 10-year treasury notes prices. Note that each time the treasuries are close to their suport (the area marked in orange), gold prices rebound.

Now the treasuries are again at their technical support. However, this time the situation is a little bit different. According to the Commitments of Traders report, big speculators trading treasury notes futures, are cutting their bets on lower or stable market interest rates. For example, last week (I mean the week that ended on October 17), big speculators had cut their gross long positions in treasuries by 73.2 thousand contracts - it was the largest cut since late November 2016.

As a result, a drop below the support is likely now. If that is the case, such an occurrence could spark a big mess around the world with gold prices going down (according to the rule that lower prices of US treasuries (and higher interest rates) have a negative impact on gold prices).

Today treasury prices are below the support (the chart shows the state of the market as of October 23) so...be cautious.

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