Gold edge lower on Friday closed at 1734, breaking 1748 support and currently testing trend line from May 19 and Mar 20. If the price break further into the trend line, gold will most likely to test 1673 support. Interesting to note that 1673 is the Point & Figure short term target. Gold price remains under pressure as yields keep rising lately.
Real yields – nominal bond yields minus the breakeven inflation outlook – have risen as investors price in a $1.9 trillion Covid relief package. While the proposed stimulus has bolstered inflation bets, it appears to have propelled sentiment surrounding an economic rebound relatively further. Hence the pace at which we have seen real yields rise as investors ditch government bonds.
Nevertheless, inflation-adjusted Treasury yields remain near historic lows despite the recent ascent. Conventional market understanding suggests gold prices may continue to drop if this trend continues. Investors are shifting capital into riskier assets as the reflation theme strengthens. As government debt is ditched for riskier assets, bond yields increase, which in turn attracts investors away from the non-interest bearing gold.
Upside for gold, if any, is likely limited for now.
Real yields – nominal bond yields minus the breakeven inflation outlook – have risen as investors price in a $1.9 trillion Covid relief package. While the proposed stimulus has bolstered inflation bets, it appears to have propelled sentiment surrounding an economic rebound relatively further. Hence the pace at which we have seen real yields rise as investors ditch government bonds.
Nevertheless, inflation-adjusted Treasury yields remain near historic lows despite the recent ascent. Conventional market understanding suggests gold prices may continue to drop if this trend continues. Investors are shifting capital into riskier assets as the reflation theme strengthens. As government debt is ditched for riskier assets, bond yields increase, which in turn attracts investors away from the non-interest bearing gold.
Upside for gold, if any, is likely limited for now.