Gold: Six things to look out for
|The gold markets have been challenging to trade recently due to a stronger dollar. You may have been puzzled why real yields were dropping lower, but gold seemed so slow to fly higher.
Why?
It was the strong USD that was clipping gold’s wings. Look at the chart below and see how gold moved rapidly higher in May and June, but only as real yields and the USD moved lower.
Right now we can see that the drop in real yields is not being accompanied by a falling USD, so gold is only nudging higher.
Six things to watch
1. Real yields: Falling real yields is good for gold, and rising real yields is bad. However, look at real yields in conjunction with the USD
2. USD: The key here is to watch for USD weakness. If we suddenly see USD weakness (a catalyst for it) then gold becomes a clear buy.
3. Inflation: If inflation pressures quickly fade then that will mean real yields can start rising and that is a pressure for gold.
4. The difference between the Fed and the ECB: The ECB meet later. If they look like becoming more dovish that will weaken the EURUSD and boost the USD. It is a neutralising effect on gold. However, if the ECB surprise markets and are hawkish, then the EURUSD strength will weaken the USD and boost gold.
5. US Treasuries: A fast push higher in US yields also will help push real yields higher. However, remember to not just look at US yields, but also US yields in line with what inflation is doing.
6. Seasonally, gold is strong right now: Over the last 10 years, gold has had an average gain of +4.43% between July 21 and August 31. This is on the Asian wedding season and tends to see strong physical demand. However, physical demand is likely to be low, like it was for the Chinese New year at the turn of the year. Nevertheless, if we see a catalyst for a weak USD then knowing this pattern won’t do any harm. However, alone it lacks teeth this year due to social restrictions on COVID-19.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.