Asia Gold Weekly: Gold moves through all-time highs
|Gold is up as negative US real yields fall again and the rally shows few signs of abating or making a significant pullback.
Instead, gold prices continue to trade tangentially to the rise in CV-19 case counts globally. Prices remained strong as CV-19 cases posted another record rise while new lockdowns in parts of the UK and Australia, and signs of fresh upswings in Europe and Japan, make for a disconcerting picture.
Investors will continue to have a favorable view of gold partly on ongoing CV-19 concerns.
While gold demand shows few signs of retracing, the yellow metal could face fierce short-term resistance at $2,000, given the growing view that we could be at the end of the runway for the US yields to fall further. And the US Treasury is running out of the exorbitant privilege of the stronger dollar and safe haven flow.
Gold has moved through its all-time highs as the story continues to be Federal Reserve money printing coupled with the potential USD1trn fiscal stimulus package for pandemic relief. Real rates continue to trend lower, and the dollar continues to weaken, so the environment should remain supportive for gold.
But I think it’s essential to break down gold views into short term and medium to longer-term narratives.
Over the short term, given gold price’s enduring correlation to US bond yields, the real story for gold to move higher should be how much further can US bond yields fall.
But over the medium term it’s how much real yield can fall as inflation picks up. And will the Feds show a firmer commitment towards allowing above-target inflation to materialize for some time before normalizing policy which could further pressure real yields lower, undermining the dollar and sending gold much higher?
The return of inflation after decades of sluggish price rises is precisely what many gold buyers are hedging; probably not this year, but hyperinflation is likely coming to a screen near you.
Finally, what makes gold investing so appealing over the short and medium-term perspective is that when US real yields are low or negative, investors have no opportunity cost in owning bullion.
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