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  • Rise in Treasury yields is increasingly challenging the status-quo in markets and supporting the US dollar.
  • Gold’s bullish trend is being challenged as are bullish commitments. 

The price of gold is sitting at $1,846 and has travelled between a range of $1,817 and $1,856 on the day.

Gold is flat towards the close on Wall Street while an aggressive rise in Treasury yields is turning heads.

US market-implied breakeven long-run inflation expectations have been trending upwards to currently sit at 2.1%, sparking speculation that inflation might be returning.

The aggressive rise in Treasury yields is increasingly challenging the status-quo in markets, analysts at TD Securities argued.

”Indeed, complacent positioning is being shaken-up as a Blue Senate forces Treasury markets to price-in a substantial increase in supply, in turn lifting rates and the broad dollar while wreaking havoc on gold.”

”The shock to positioning is reverberating, as CTAs are set to liquidate their gold length and target a net short position for the first time in months.”

”Looking on the horizon, it seems that an imminent covid-relief bill and the prospects for a substantial infrastructure package down the road should support higher inflation expectations and in turn, translate into a higher price for inflation-hedge assets.”

On the other hand, the demand outlook is still fragile as COVID runs rampant. Evidence of persistent inflation pressure could still some way off.

Moreover, the analysts at Td Securities also noted that gold is an inflation-hedge asset only inasmuch as the Fed’s stance on rates translates into a low rates vol environment.

”Recent fedspeak has pushed back against the need to immediately extend the weighted-average maturity of their Treasury purchases, suggesting officials are testing the resilience of equity markets against higher rates. This argues for a different trading regime than we have operated in for the last nine months.”

Looking ahead for the week, December US Consumer Price Index data will be important.

The headline rate is expected to jump sharply (+0.4% mom) owing to firmer oil prices which could well contribute to some further weakness in the Treasury market, supporting the greenback and weighing on gold.