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Analysts at HSBC believe that the near-term driver for gold is US Treasury yields. They consider COVID-19 concerns, monetary and fiscal stimulus support gold.

Key Quotes: 

“Our precious metals analyst thinks a stronger USD could be a block for gold in the longer term. Normally, gold trades inversely with the USD. But for many months it has tended to trade directionally with the USD. We have submitted that this may be because investors are looking for safe havens and have moved into the USD, US Treasuries and gold simultaneously. If we enter a process of normalization, the USD and gold may revert to their more traditional inverse relationship. We think the USD is neither going to enter a bear or bull market, but will instead be firm which would present headwinds to gold rallies.”

“Currently, the key for gold is not the USD, our precious metals analyst believes, but yields. Gold has been sensitive to the US 10-year Treasury yield. The last drop in gold below USD1,700 per ounce earlier this month was accompanied by a jump in the US 10-year Treasury yield to 0.95%.”

“Gold can give up more ground near-term. But accumulated risks, combined with long-term stimulatory monetary and fiscal spending, will likely put a near-term floor on gold prices.”