As bond markets puked yesterday, it validated the drop in gold this week amid a firmer dollar as well. Gold may be up 0.3% today (at least for now) but is still down 1.3% on the week and set for its worst performance since mid-June. Looking at the chart:

The rally in July stalled upon hitting daily resistance at the June highs around $1,983. Since then, gold has struggled as yields turn higher with 10-year Treasury yields rising from 3.73% to 4.20% during said period.

And as the bond market continues to vote for higher yields as of late, that is dragging gold prices back down again.

The next key downside level to pay attention to is the $1,900 mark where the drop in June stalled. This time around though, it poses even more importance as the 200-day moving average (blue line) is now sitting there at $1,900.20 currently.

As such, that will be a key level for buyers to defend. And if sellers can break below that, there might not be much to stop gold from falling further towards the February and March lows near $1,800.

In any case, my structural bias remains long on gold and the two levels above are good spots for buyers to make a stand. The $1,900 mark may yet give way considering the bond market sentiment, so I’d rather scale in on longs than to jump with both feet if and when we do get to that level first.

And if we do get a significant retracement back to $1,800, I can imagine buyers licking their lips to get in on the action as the long-term outlook is likely to favour gold as central banks move to the sidelines on tightening further.

This article was written by Justin Low at www.forexlive.com.