(Kitco News) - Despite some selling pressure, gold continues to hold critical support above $3,300 an ounce. However, according to one analyst, the path of least resistance may be lower as equity markets gain new momentum.
Although optimism is growing that gold could reach $4,000 an ounce, Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence, said the market still appears overbought. He added that a new catalyst is needed to support another leg up in the current bull run.
McGlone noted that there is a rising risk that gold prices could retest support at $3,000 an ounce if equity markets continue to strengthen.
“A top candidate is relative weakness in the U.S. stock market. The metal's nearly 60% premium to its 60-month moving average was last matched in 2011, when gold peaked at around $1,900 after climbing from its 1999 low near $250. That rally was underpinned by gold rising from a low plateau relative to the S&P 500 (SPX),” he said. “At 0.53, the gold/SPX ratio remains below the high of 0.69 in Q1 2020. This ratio serves as a macroeconomic indicator, and for gold to remain above this year's $3,500 high, the gold/SPX ratio may need to rise—implying underperformance in equities.”
In addition to new momentum in equity markets as the S&P 500 continues to trade at record highs, McGlone said that gold now faces renewed competition from rising bond yields.
“If the U.S. Treasury 30-year yield remains above 5%, coupled with resilient equities, gold could face pressure toward $3,000,” he said. “Whether it's gold prices or Treasury yields that are too high, the current imbalance appears unsustainable.”
Among alternative assets, McGlone said gold investors should also monitor Bitcoin, which may be overbought as prices consolidate above $100,000 per token.
“Bitcoin and gold used to exhibit similar chart patterns with the S&P 500, but Bitcoin has shown divergent weakness since Q2 2024. Will the ratio of this highly speculative digital risk asset to the ancient store of value catch up to beta—or is it an early warning? We lean toward the latter,” he said. “The May 22 high of 5.15% in the T-bond yield—just a few basis points from a two-decade extreme and coinciding with Bitcoin’s peak around $112,000—could mark lasting ceilings for both.”
