Could See More Downside On Higher USD Levels

The backdrop for gold still looks to be a bearish one. The precious metal has dropped over 2.5% in the past 2 sessions, as the USD and yields continue to recovery. We are relatively steady so far today in trading. Gold was last just above $1666, only slightly down on NY closing levels.

• Given the DXY is back above 113.00, a simple visual relationship suggests that gold should be testing sub $1650.
• Added to this is the generally hawkish core yield backdrop. The 10yr US real yield is back to 1.62%, only slightly down on cyclical highs.
• The weaker equity market back drop is likely helping at the margin, although the dollar and real yield move tend to be more important drivers over a multi-day/week horizon.