Gold had another solid week with futures moving higher by nearly 2.5 percent. Bond yields in the U.S. closed lower as the curve continues to flatten post-Fed hike. The 10-year yield is down 12.97 percent from cycle highs, while the 30-year yield is down 8.49 percent. We did warn (back in September) that another Fed rate hike would be ultimately dovish.
MacroView continues to believe that the Fed will unlikely be able to deliver their foretasted number of rate hikes for 2017.
Real yields continue to drive gold prices higher, currently at -10 bps. Many fail to communicate (either out of ignorance or moral hazard) that gold does not move on the rate of change on nominal yield but on real yields: nominal minus the rate of inflation.
The fact of the matter is that if the Fed allows inflation to run hot but nominal yields continue to move sideways, or lower, gold is going to continue to outperform. Gold and U.S. real yields have a strong negative correlation of .93.
Since the Fed hiked last December, real yields have fallen over 40 bps and currently only 21 bps higher then when President Trump was elected.
Price action for gold is a bit overextended near-term with a 1D z-score of 1.76. Expect prices to pullback and consolidate gains. The U.S. dollar should remain range bound between 100.3 and 101.70. Nominal rate may move higher momentarily as pricing z-score on the 2-year yield hit -2. Longer-term price action remains healthy with a z-score of 1.03.
Key Weekly S/R Levels
S1: $$1,249
S2: $1,222
R1: $1,281
R2: $1,307
MacroView continues to believe that the Fed will unlikely be able to deliver their foretasted number of rate hikes for 2017.
Real yields continue to drive gold prices higher, currently at -10 bps. Many fail to communicate (either out of ignorance or moral hazard) that gold does not move on the rate of change on nominal yield but on real yields: nominal minus the rate of inflation.
The fact of the matter is that if the Fed allows inflation to run hot but nominal yields continue to move sideways, or lower, gold is going to continue to outperform. Gold and U.S. real yields have a strong negative correlation of .93.
Since the Fed hiked last December, real yields have fallen over 40 bps and currently only 21 bps higher then when President Trump was elected.
Price action for gold is a bit overextended near-term with a 1D z-score of 1.76. Expect prices to pullback and consolidate gains. The U.S. dollar should remain range bound between 100.3 and 101.70. Nominal rate may move higher momentarily as pricing z-score on the 2-year yield hit -2. Longer-term price action remains healthy with a z-score of 1.03.
Key Weekly S/R Levels
S1: $$1,249
S2: $1,222
R1: $1,281
R2: $1,307
With intraday z-score near -2, gold could see bids near $1,245-49.