Gold is attempting to break out after a bearish stretch that began in late August. Treasury futures and the US Dollar Index, two markets tied to that weakness, show signs of reversing. Whether the breakout holds is the open question.
Gold is attempting to break out after a punishing bearish period since late August. Two of the key markets that contributed to its weakness are now showing signs of potentially reversing. The question is whether gold can make the breakout stick.
The first is US 10-year Treasury note futures. They look to be establishing a bottom after hitting extreme oversold conditions earlier this month. The analysis uses futures as the preferred measure because they are directly tradable, unlike Treasury yields. Over the past month, their positive correlation with gold strengthened to +0.89, though the link has been less consistent than gold's relationship with the dollar.
The second is the US Dollar Index, which had become unusually stretched to the upside. Its RSI (14) reached 76.8, in the highest 1.5% of observations since 2013. Since then the RSI (14) has moved back below overbought territory and is setting lower highs, while the uptrend in place since early September has cracked.
However, that does not mean the break will stick. If it does, it points to a potential change in the dollar's trend, at least over the short to medium term.
Source: Investing.com
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