(Kitco News) – Gold’s dramatic Thursday selloff Has erased all of the yellow metals gains since the summer, and the lack of correlation with the US dollar index and bond yields suggests that this could be more than liquidations from the tech selloff, and may indicate the next round of yen interventions by the U.S. government, according to Jesse Colombo, independent precious metals analyst and founder of the BubbleBubble Report.
Columbo told Kitco News on Thursday afternoon that he was just trying to decipher what was going on in the gold market.
“Very bizarre action,” he said. “The dollar index is down. Normally you would expect the dollar index to be up one percent on a day like this, and yet it's down 15 basis points.”
Columbo noted that the yen had strengthened considerably, and this could indicate an intervention to strengthen the yen, which would be bearish for the dollar.
“Normally that would boost precious metals,” he said. “But today you have precious metals falling along with the dollar – not that the dollar's down that much – and then you have bond yields sinking, but that hasn't given a boost to precious metals either. It's very bizarre behavior.”
He acknowledged that crude oil was up a little bit, but not enough to explain the move in gold. “My suspicion is [that’s it’s partly] technical, and there's some liquidation related to AI stocks, technology stocks, that could be part of it. Some of it may also just be risk aversion ahead of the Fed meeting next week, in case Warsh takes a hawkish tone again.”
From a technical perspective, Columbo noted that gold prices were reapproaching the key range of support levels between $4,000 and $3,900 per ounce where they bounced this past summer.
“Until it breaks below that, I'm not concerned,” he said. “Until then it could just be a double bottom or bounce. We don't know. As of now, all we know is it's testing that support.”
“If it breaks below, we take it from there,” he added. “I don't want to jump to any conclusions. But yes, it's very bizarre, and it just feels overdone.”
“Unfortunately, it gave back that August gain, and retraced the whole move.”
Columbo said the main beneficiary on Thursday appeared to be U.S. Treasuries. “But often when that happens, the dollar rallies, and we don't have that,” he noted. “And maybe that's being offset by a yen intervention. I don't see any news… sometimes they report after the fact, but I suspect that there was a yen intervention.”
Columbo shared a chart showing the known yen interventions that have been done since February, with Thursday’s move looking like the start of another one.
“It looks congruent with those big green vertical bars in recent months,” he said. “Those were all confirmed yen interventions. And then we've got the beginnings of one today. Sometimes they've occurred back to back, so maybe there's a possibility of another yen intervention tonight or in the next few days.”
He said it could also just be the cascading effects of the AI-related equities selloff, which has hit North American and global equities. “It could be in Asia too, it could be liquidations. You have the KOSPI selling off heavily, you have the Nikkei selling off heavily – and crypto too, by the way. So it is possible.”
Columbo said that if it is in fact just risk aversion from the tech selloff, then gold could have been down even further without the bond rally.
“The fact that yields are down may even be providing some cushion to precious metals,” he said. “Meaning, if yields were up today, we'd be right through $4,000. it's possible that this is actually cushioning the blow.”
Spot gold continued to set new lows on Thursday afternoon, last trading at $4034.76 per ounce for a loss of 2.57% on the session.
