Despite the recent selling pressure, analysts say the gold market is holding up pretty well, given that bond yields are at their highest in 15 years. So what route will gold prices follow from now on?
This development is negative for gold prices!
cryptocoin.com As you can follow, the yield on US 10-year bonds rose to 4.36 overnight, the highest level since late 2007. Analysts say that the increase in bond yields increases the opportunity costs of gold as a non-yielding asset. Therefore, he states that this development is negative for gold prices.
Despite the bond yields, gold prices managed to hold on to critical support. Gold futures for December delivery were up 0.12% on the day at $1,926.20 an ounce. Some analysts say that gold could benefit significantly if rising bond yields signal a crisis of confidence in US debt. However, many analysts note that weakness in US bonds has a regular appearance. He also states that it is a natural reaction as the expectations are for the Fed to continue its aggressive rate hikes.
“ Correlation between gold prices and bonds is deteriorating”
Nicky Shiels, MKS PAMP metal strategist, points to the deterioration of the correlation between gold and bonds. He states that this is likely a result of lower market volatility as interest in physical gold increases. In this context, the analyst makes the following statement.
The physical interest in gold has grown significantly in various centers at a time when fast money has dwindled considerably. Liquidity or lack of liquidity affects the general movements in August more than in the past. For a reliable signal, it’s hard to convincingly read short-term responses in a month with low volumes and low volatility in most asset classes. Any negative USD/US interest market catalyst will accelerate the breaking of traditional correlations and sharply rising prices.
Gold will continue to benefit from this market perception!
Other analysts say gold prices will likely continue to benefit from the growing market perception that the Fed has finished raising interest rates. According to CME FedWatch-Tool, markets see an 85% chance that the central bank will not change interest rates next month. In addition, the markets foresee a 50/50 probability of another rate hike before the end of the year.
Adrian Day: This is what will move the gold!
Some analysts see yields likely to rise in the short term. But they say the end of the central bank’s tightening cycle should eventually limit returns. One of them, Adrian Day, Head of Asset Management, shares the following assessment:
While gold prices find solid support, what will really move gold is that the Fed stops tightening before it brings inflation under control. Due to its debt and the threat of a recession, the US may be on the verge of a bond market crisis, but it won’t happen overnight just yet.
Ole Hansen: Gold prices show signs of stabilization
Ole Hansen, head of commodities strategy at Saxo Bank, sees the gold market likely to receive some support as uncertainty continues to dominate financial markets. In this vein, Hansen underlines the following in a note released on Tuesday:
Despite these major hurdles, notably the rise in real yields, gold prices are showing signs of stabilizing with the latest offering supported by a softer dollar and rising silver prices amid rising industrial metal prices amid continued speculation that China will have to spur further stimulus. Additionally, investors may be considering the risk that Powell’s speech in Jackson Hole on Friday will turn 180 degrees to say the Fed is done. While highly unlikely, the risk of such a move could be enough to influence a few shorts.
