The Only Gold Chart You Need

Aside from drawing arrows in Christmas colors the following chart serves to highlight an unmistakable relationship that has existed between Treasury yields and gold during the last year:

 

30-year US Treasury Bond Yield (top) vs. Gold (bottom)

Gold_vs._USTs

The inverse correlation between Treasury yields and gold has been pronounced and growing stronger (currently at nearly a 90% inverse correlation). The strength of this relationship has now gotten to the point that gold traders/investors can simply look to Treasury yields (10-year note and 30-year bond) to figure out where gold is trading and which direction it has moved on a given day. However, who knows how long this correlation will last?…

We have seen gold sell-off aggressively during the last week after the market suddenly became convinced that the Fed will move to raise the Fed Funds Rate at its next meeting in December:

 

 

December_Rate_Hike

Tomorrow’s monthly employment report is likely to be the deciding factor in whether the Fed takes action at its December meeting. The market has spent the last week pricing in a much stronger employment report and a much greater chance of a rate hike at the December meeting. Now we will have to see if the market has yet again set itself up for a disappointment.

Meanwhile, gold is at an important technical juncture as it faces its 7th consecutive down day and potentially the 3rd consecutive close below its lower 2-standard deviation Bollinger Band:

 

Gold (Daily)

Gold_11.5.2015

 

The uptrend from the July low was decisively breached this week and now all that’s really left is the support near $1100 and the July low at $1072. However, I would have to say that if $1100 gets cleanly breached then $1072 doesn’t offer much chance of holding up as support again. Gold is truly facing a big test over the next 24 hours and how the yellow metal finishes this week is likely to tell us a lot about the final two months of the year.