Despite the high likelihood of another interest rate hike from the Federal Reserve later this month, gold has seen a rally near $70 an ounce in recent weeks. This trend was reinforced by moderate inflation data and early signs of weakness in the U.S. labor market, such as a notable increase in weekly jobless claims and the first lower-than-expected monthly nonfarm payroll numbers since early 2022. market price, which implies a roughly 95% probability that the Fed will raise the federal funds rate (FFR) to 5.50% at its July 26 meeting, at face value, then we face a situation in which monetary policy conditions are the most restrictive they have been for at least twenty years.
Furthermore, the 2-10 year Treasury yield spread has been inverted for over a year and in recent weeks reached a new 52-week low at a reversal of 108 basis points:
Treasury yield curve 2-10 years
![](https://cdn-ceo-ca.s3.amazonaws.com/1ib6mb9-Yield%20Curve%207.15.2023.png)
This strong reversal sends a multi-faceted message to investors:
- The Fed won't cut rates anytime soon.
- The Fed appears determined to impose at least a mild recession in order to finally kill the last vestiges of inflation.
- Until the labor market shows real cracks, the Fed is unlikely to begin an easing cycle.
- The market does not believe that the Fed can maintain such a restrictive monetary policy for very long (first rate cut in the first quarter of 2024, or even earlier).
Given the extent of tightening by global central banks over the past two years, it is impressive that gold has reached new all-time highs in several currencies (euro, pound sterling, yen, etc.) this year. and remains within 6% of an all-time high in US dollar terms.
Based on the pronounced weakness in the US dollar index last week and the relative strength of gold, it appears to me that gold is trading well due to impending fiscal disaster in the US and of a major Fed easing cycle to come, whether it starts in six months or six months. nine months. The dollar will gradually lose its share as the world's reserve currency, and gold will remain the only true timeless store of value used by cultures around the world for thousands of years.
Now let's look at gold in US dollars over multiple time frames:
Gold (daily)
![](https://cdn-ceo-ca.s3.amazonaws.com/1ib6mch-Gold%20Daily%207.15.2023.png)
The rally from the June low at ~$1,900 has reached an important area of resistance confluence between $1,970 and $1,980, an area that roughly aligns with resistance from early February. It is common for rebounds to experience consolidation/pullback when first testing the 38.2 Fibonacci retracement level, especially when this coincides with a decline in the 50-day moving average.
Gold (daily – one year)
![](https://cdn-ceo-ca.s3.amazonaws.com/1ib6mcv-Gold%20Daily%202.png)
Fibonacci levels have worked well for gold, as evidenced by the support found during the 38.2 Fib retracement of the entire October 2022/May 2023 rally.
Gold (weekly)
![](https://cdn-ceo-ca.s3.amazonaws.com/1ib6mdd-Gold%20Weekly%207.15.2023.png)
The weekly chart shows potential dip candles just above major long-term support at $1,900, followed by last week's large, full-bodied bullish candlestick. I also find it notable that price bottomed when the weekly RSI (14) exploited the midline from above.
Gold (monthly)
![](https://cdn-ceo-ca.s3.amazonaws.com/1ib6mdq-Gold%20Monthly%207.15.2023.png)
A few months ago I discussed the “triple peak” in gold and pointed out that we would need much more evidence to declare that this is a bearish trend. Since the potentially bearish monthly “spinning top” candlestick from May was printed, gold saw a relatively normal correction in foot trading volume. It will be important to see if July continues to shape up as a green month for gold; a monthly close above $2,000 would be decidedly bullish, while a close below $1,900 would increase the chances that May's high at $2,085 is indeed a significant bearish inflection point.
So far, the price and volume action does not give the impression that the triple top interpretation is valid. Rather, this could prove to be a continuation uptrend with a breakout >$2,085 later this year. Additionally, the fact that gold continues to spend significant time above 2011 highs bodes well. Bear markets do not consolidate near all-time highs for extended periods of time.
The technical picture for gold is quite positive and stands in stark contrast to the widespread negative sentiment towards the yellow metal. Even after its recent rebound, the daily sentiment index for gold remains at a modest level of 38. Meanwhile, many investors continue to believe that gold is not a good hedge and that gold has performed poorly in recent years. The reality couldn't be much further from this conventional wisdom; Over the past twenty years, gold has far outpaced inflation and in other global currencies such as the yen, gold has doubled again over the past five years.
Gold in Japanese yen (weekly – 10 years)
![](https://cdn-ceo-ca.s3.amazonaws.com/1ib6mep-Gold%20yen.png)
It's a pretty good performance, I must say.
The bearish scenario for gold involves a combination of a soft landing or no landing scenario for the US economy and the continuation of the US dollar as the global reserve currency. The bullish case for gold involves a continuation of already well-established trends, including increasing government debt, global currency depreciation, and a steady reduction in the role of the U.S. dollar as the global reserve currency used in the settlement of the majority of international trade.
I am comfortable continuing to be optimistic about the US economic engine, while also being confident that all global fiat currencies will continue their long-term trajectory towards zero and that politicians will continue to reduce debt for as long as it is humanly possible.
Gold has a bright future.
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