Gold Rally Faces Reversal as Strategist Warns of $3,000 Drop

The precious metals rally has been one of the biggest stories in the third quarter. Despite a sizeable pullback, bullish sentiment and global ETF flows suggest gold could surge past $5,000 per ounce. However, Bloomberg Intelligence Senior Commodity Strategist Mike McGlone warns that the rally is running on borrowed time.

According to McGlone, the market is setting the stage for a potential retreat toward $3,000 from above $4,300 today. He notes that markets usually don't die in complacency, but rather in euphoria, and there's just so much bullishness for gold.

The 10-year Treasury yield reaching 5% offers the highest guaranteed return in decades, creating a formidable barrier for non-yielding assets like gold and silver. McGlone notes that when the Fed was cutting rates and the 10-year note had a 50 basis point yield, it was a time to buy gold and sell bonds.

However, with the 10-year note now at 500 basis points, up 10x from its low in 2020, McGlone believes that metals are vulnerable due to their high correlation with equities. He notes that gold's correlation to the S&P 500 was the highest almost ever just a few weeks ago.

McGlone expects gold to trade in a range between $3,000 and $5,000 for a long time, and warns that investors should be cautious when gold gets excited. He believes that the sooner it goes down to $3,000, the better, as this would allow him to get bullish on the metal.