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  • Gold prices taking over the baton on Thursday as yields fall.
  • US dollar sinking back below the psychological 100 handle is helping to support gold.

Gold prices have struck a fresh high for the month, withing the ebbs and flows of the markets. Gold and the US dollar are taking it in shifts to carry the safe-haven flows with COVID-19 at the heart of the risk-off themes. Today, it is gold’s turn to shine, rallying from a low of $1,681.49 to a high of $1,719.91 while the US dollar falls behind, losing the 100 handle in the DXY to print a low of 99.91.

Mixed markets

Despite both European and US benchmarks in the green, VIX in the red, gold has managed to take off, potentially with a lot of pent up demand. The trade war themes have resurfaced this week and cautionary money flows emanate from the fact that nations are experimenting with their workforces by attempting to open up their economies in the face of further COVID-19 contagion.

It’s now all about yields

However, the most compelling factor in markets today is how far yields have fallen. The 10-year US treasury yield is down by as much as 10%, falling from 0.717 to a low of 0.622. The correlation with gold is tight. The move follows yesterday’s US Treasury refunding announcements and a surge in supply. 

However, analysts at TD Securities explained, “our rates strategists expect the Fed to buy at least $3T of Treasuries by the end of 2021, but argue that their pain threshold to alter the maturity of purchases is elevated, which suggests the curve can steepen before they would step in. This concerns gold and precious metals inasmuch as rising yields offer an alternative safe-haven to the yellow metal — thereby putting pressure on prices.”

This poses another risk to gold’s short-term outlook, along with the potential for real rates to rise in the near-term, while the Fed would be unwilling to cut rates below zero to further suppress real rates, thereby weighing on gold. That being said, we expect that when the dust settles, capital will seek to shelter itself from a prolonged period of negative real rates following the pandemic. 

Gold levels