- Rising real yields saw spot gold erase gains made during the early part of Thursday’s session.
- XAU/USD bears are targeting the $1764.50 November 2020 low.
Gains seen during the Asia Pacific and early European session on Thursday, which saw spot gold prices (XAU/USD) stage a modest recover from Wednesday’s $1770 lows to just shy of the $1790 mark, appear to have been nothing more than a dead cat bounce. Since the arrival of US market participants and the start of US trading hours, these gains have all but been erased and XAU/USD is back trading in the $1770s again.
Indeed, spot gold briefly dipped below Wednesday’s $1769.50 low to set fresh annual lows at $1768.50. Gold bears have the late-November 2020 low at just under $1765 in their sights. Break below this level would open the door to a run at $1700 and perhaps a test of May and June 2020 lows around $1670.
Driving the day
Macro focus has returned to price action in the US government bond markets on Thursday. The arrival of US market participants into the market saw US bond yields bounce and gold subsequently come under pressure. Nominal US bond yields have fallen back in recent trade but real yields are holding onto gains, hence gold continues to trade close to lows of the day; the 10-year TIPS yield is up another 4bps on Thursday, meaning it is now up roughly 12bps on the week.
Higher real bond yields are bad for non-yielding precious metals, but the combination of unchanged nominal yields and higher real yields (as is the case today) is even worse, as it implies that inflation expectations have fallen (remember that precious metals are seen as an inflation hedge). Inflation expectations appear to have taken a hit amid downside in US stock markets (the S&P 500 is nearly 1.0% lower on the day)
The net result is that Thursday’s price action is a double whammy negative for precious metals markets. The only factor likely preventing the likes of gold from cascading beyond the November 2020 low is the weaker US dollar.
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