Gold markets have been out of control during the trading session on Thursday, which is not a huge surprise considering that the CPI numbers came out much hotter than anticipated in the United States. The first thing that we saw was interest rates spike, which absolutely cratered the gold market at one point. However, we started to see a major turnaround shortly thereafter, and gold took off to reach towards the $1845 level.
While that confusion was certainly enough, we then have the added benefit of St. Louis Federal Reserve Gov. James Bullard coming out and stating that he was hoping for 100 basis points of tightening between now and July. This matters because he is a voting member of the FOMC and has even stated that the next rate hike should be 50 basis points. In other words, the Federal Reserve is about to slam on the brakes, and this had interest rates spiking yet again. With that, we lost a lot of the big gains, and now gold seems to be exhausted in trying to figure out what to do next.
We have had a very significant move to the upside, so a pullback would make sense regardless. After all, markets do not go straight up in the air forever, although I do think gold could go fairly well if we have plenty of inflation. However, if the rate of change in the bond market is too quick, that hurts gold as you can start to lock in something close to a real rate of return. Keep in mind that most people do not hang on to bonds throughout duration, so you have to watch what the 10 year and 30 year bonds are doing as far as yield in order to get an idea as to what can happen here.
If we break above the top of the candlestick, then I do not see anything stopping us from going to the $1850 level, as it would be such a bullish sign. However, if we break down below the bottom of the candlestick, then we could very well go looking towards the 50 day EMA. Gold is a very volatile market currently, mainly because the bond market is getting heated up. As long as that is going to be the case, I will be cutting my position size.
