The battle for bullion - What is really driving gold?
Tony Sycamore January 18, 2022 11:19 PM
In mid-November, gold spiked higher to $1877, underpinned by a sharp fall in U.S. real yields, back to deeply negative cycle lows. For reference, at the time, U.S 10-year yields traded down to -117 bp.
In late November, the renomination of Fed Chair Powell over Fed Governor Lael Brainard was considered a hawkish development. U.S. real yields rebounded higher, and gold wasted little time collapsing below $1800 before finding support near $1753 in mid-December.
Since mid-December, real yields have rallied further away from the deeply negative levels of November. Evidence of how far they have come, U.S. 10-year real yields (the interest rate adjusted for inflation) closed overnight at -59bp.
The dominant view that real yields are the key driver of gold is now under review. Is gold set to move lower, dragged down by rising real yields. Or are other factors now in the driving seat and set to take gold higher?
Potentially the fall in the U.S. dollar in early 2022 has provided support for gold (the two are negatively correlated). However, the U.S. dollar Index, the DXY, is now just a stone’s throw from where it started the year. Hence support from a weaker U.S. Dollar is being eroded.
Another possibility is with inflation printing near 40-year highs at 7%, there is a growing fear of debasement of fiat currency. Investors, including central banks, are again accumulating gold.
Technically the $1830/$1850 level looks to be a useful pivot (bullish above bearish below) in the battle for gold.
Should gold see a sustained break and close above the $1830/50 resistance, the picture would start to brighten for bullion. Until then, the risks appear skewed to the downside.
Source Tradingview. The figures stated areas of January 19th, 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.