Will gold prices ever shine again?
Gold has finally moved below its recent range as the market has been unable to withstand rising interest-rate expectations, which have pushed U.S. 10-year bond yields above 3%, their highest level since 2011.
June gold futures last traded at $1,294.20 an ounce, down almost 2% on the day.
"The rise in bond yields means that a June rate hike is now baked into the cake, so we can see gold prices a lot lower in the near term," said Phillip Streible, senior market analyst at RJO Futures. "I think gold could fall to $1,250 an ounce before all the dust settles."
Ole Hansen, head of commodity strategy at Saxo Bank, agreed that gold is suffering because of shifting interest-rate expectations. He explained that with oil prices hitting a multi-year high above $70 a barrel, this is raising inflation fears in the marketplace, and the Federal Reserve could be forced to raise interest rates to keep inflation in check.
Hansen added that gold's losses Tuesday are broad-based as it is losing ground against other major global currencies like the euro. "Right now the floodgates have opened and I think we could see momentum push prices much lower," he said.
Along with growing inflation expectations, the U.S. dollar received a boost Tuesday following "solid" April retail-sales data and stronger-than-expected manufacturing data from the New York Federal Reserve.
Looking ahead, Hansen said that first line in the sand he is watching is $1,286 an ounce.
"If that level breaks, then investors will start to questions whether this is more than a correction," he said.
Darin Newsom, senior analyst at DTN, said that he is also watching the $1,286 level as this represents a key trend line from the 2015 lows. While gold prices are suffering from significant technical-chart damage, there is still a modicum of hope that prices can turn around.
Hansen said that if equity markets continue to drop, investors could jump into gold as an alternative safe-haven investment. He added that if long-term inflation pressures move higher, then gold still looks attractive as real interest rates will remain low.
Streible said that one way gold bulls could play the market is by buying longer-term call options. He added that he like the idea of buying December $1,320 call options. He added that investors should look at options above gold's 200-day moving average, which comes in at $1,315.70 an ounce.
"I think you need to give gold some time to recover after this," he said. "There is nothing in the immediate future that will drive prices higher."