Bond market likely to decide whether gold can take another crack at $4,200

Gold appears set to take another shot at $4,200 as the new week opens, helped by a measure of confidence among buyers from lower Treasury yields and cheaper oil. The rebound from the latter part of last week is promising, yet the bond market still appears to hold the deciding vote on how much further this rally can go.

Gold has been attempting to build a floor near $4,100 since the steep pullback in late September. Some protection for the decline comes from technical support at the 78.6 Fibonacci retracement, which sits around $4,117. Buyers have kept trading above that mark, but they still lack the confidence needed to drive prices back above $4,200.

That leaves the technical picture looking fairly cautious for now.

A decisive move above $4,200 would be a good opening for buyers, though the next hurdle is the 100-day moving average near $4,239. Should that level give way, a push toward the swing zone of roughly $4,300-20 could come into view.

What is holding gold buyers back from gaining more traction right now?

The pullback in Treasury yields has given the metal, which pays no interest, some breathing room. The 10-year yield has eased back toward 5.06% on the day, yet concerns about elevated inflation have not really disappeared. Last week's US inflation numbers, which came in above forecasts, are still weighing on the Fed outlook, and traders continue to expect another rate increase before the year is out. It may not happen in October, but fed funds futures point to roughly 90% odds that the Fed delivers another hike in December.

Even with the retreat in 10-year Treasury yields, they remain high, staying above 5%. That still makes them a tough rival for an asset such as gold, which generates no income.

For the moment, $4,100 is the main support level to keep an eye on. If that gives way, gold could be exposed to another attempt at the psychological $4,000 level. Given that the metal has held onto the bounce seen since late last week, buyers might yet have another chance to challenge $4,200 this week. Still, unless the recent fall in Treasury yields is maintained, betting on a durable breakout for gold would be hard.