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The latest pull-back in the price of gold to below $1,700 has illustrated its greater sensitivity to US long than short-dated real yields. Strategists at Capital Economics expect the precious metal to fall further as the US real yield curve continues to steepen.

See –  Gold  Price Analysis: XAU/USD to slide towards the $1650 mark – OCBC

Key quotes

“Short-dated real yields have fallen amid repeated signals from the FOMC that monetary policy is likely to remain very loose for a long time yet. By contrast, long-dated real yields have risen as investors have increasingly assumed that the flipside will be tighter policy down the road than would otherwise have been needed to bring inflation back down towards the Committee’s target. This pivoting of the real yield curve has been accompanied by a slump in gold.”

“Our expectation is that the US real yield curve will continue to steepen. Indeed, we suspect that most of the ~50bp increase we project in the nominal yield of 10-year conventional Treasuries between now and the end of this year will result from a higher real yield. We expect this to heap more pressure on the price of gold, which we doubt will get any offsetting boost from a flight-to-safety given our view that the US stock market will stay strong in the meantime.”

“Our end-2021 forecast for the price of the yellow metal is $1,600/oz.”