Gold: Stable bond yields to weaken the yellow metal – HSBC

Gold has had a cumulative gain of about 30% so far this year ignited by the pandemic but economists at HSBC believe the recent rally may be overdone. Yet, a further dip in US bond yields can sustain a modest rally in yellow metal.

Key quotes

“The ‘nuts and bolts’ of Mr. Powell’s speech were largely expected. However, he did not touch on what could have been much more gold bullish topics of monetary policy, such as asset purchases and yield curve control. We believe that the rally in gold last Friday (28 August) has been overdone and should bond yields stay firm, or USD selling abate, gold could weaken.”

“We believe a further dip in US bond yields can sustain a modest rally in gold. For many months, gold was more impacted by US bond yields, especially the yield on the US 10-year Treasury note, than any other single factor, although historically gold is usually more influenced by the USD, with which it is inversely correlated, in our precious metals analyst’s view.”

“The rising COVID-19 case count means the European economy needs all the help it can get and greater accommodation may weaken the EUR – and undermine gold.”

“Efforts to control COVID-19 continue to trigger opposition, including a weekend mass protest of 38,000 in Berlin over restrictions. Social unrests and geopolitical tensions could lend some support to gold.”