AN INTERMARKET LOOK AT GOLD

GOLD RALLY STALLS AT OVERHEAD RESISTANCE... Gold has risen to the highest level in a year and has been attracting a lot of attention lately.   Gold is traditionally viewed as a safe haven asset when investors are concerned about the state of the economy in an inflationary environment.  The weekly bars in Chart 1, however, show the price of gold having reached potential overhead resistance formed  in 2022 and 2020.   Its 9-week RSI line in the upper box is also in an overbought condition which suggests that the uptrend may have travelled too far too fast and is due for some corrective action.    Having said that, the major trend for gold is still in a major uptrend and should be viewed in that bullish context.   When analyzing the direction of gold, however, it's important to be aware of intermarket forces that are pushing it higher.   That includes the direction of interest rates and the dollar.

FALLING BOND YIELD BOOSTS GOLD... Chart 2 compares the trend of the 10-Year Treasury yield (green bars) to the Gold SPDR (GLD) and shows them moving in opposite directions.   The brown bars show the upturn in GLD last November coinciding with the peak in bond Yields (TNX).   Since gold doesn't pay any yield, it usually does better when bond yields are dropping.  So buyers of gold need to keep an eye on the direction of bond yields.   To the far right, the chart shows oversold bond yields ending the week on an upnote.   At the same time, the price of GLD is ending the week on the downside.   Gold is pulling back from an overbought condition of its own and the presence of overhead resistance.   But the uptick in the TNX is also causing some gold profit-taking.   So is an uptick in the dollar.

FALLING DOLLAR HAS ALSO BOOSTED GOLD... One of the strongest intermarket relationships is the negative correlation between gold and the U.S dollar.  In other words, they usually trend in opposite directions.  Chart 3 shows the fourth quarter upturn in the Gold SPDR (GLD) coinciding with peak in the dollar.   And they've trended in opposite directions since then.   The chart, however, shows the UUP finding some support near its February low while in an oversold condition.   The chart also shows a rebound in the UUP on Friday contributing to a pullback in GLD.   Despite its Friday rebound, the major trend of the dollar looks more negative than positive which should carry good news for gold.    But gold bulls should also monitor the trend of the dollar.   It's also no coincidence that bond yields and the dollar are trending together and opposite the price of gold.  Falling U.S. interest rates have been one of the main factors pulling the dollar lower.   Although the price of gold itself is still the best way to monitor its technical condition,  it's also a good idea to keep an eye on the direction of bond yields and the dollar to help time gold positions.