Gold holds onto ground taken over $1800 mark; drop in real yields, inflation worries determining factors
(USAGOLD – 7/9/2020) – Gold held onto ground taken beyond the $1800 mark over the past two days as concerns lingered about ramped-up coronavirus cases in the United States and the future direction the U.S. dollar. It is trading up $2 on the day at $1813. Silver continued to plow higher – up another 21¢ today at $19.01. Saxo Bank’s Ole Hansen – often quoted in financial media – says that surging prices for both metals have been driven predominantly by sagging real yields on U.S. Treasuries.
“Spot gold has broken above $1800/oz thereby succeeding what it failed to do on two previous occasions most recently in 2012,” he wrote yesterday in the bank’s regular client advisory. “With silver at the same time breaking resistance at $18.40/oz the path towards higher prices have now opened up. The break could now signal an extension for gold towards the 2011 record high at $1920/oz while silver could take aim at the next level of resistance just below $19/oz followed by $19.65/oz. … The single biggest input that has driven the latest move higher has been the recent developments in U.S. yields. While the yield on ten-year notes remain anchored in a relative tight range, we have seen breakeven yields, an expression of inflation, move higher leading to a drop in real yields to the current -0.8%. These developments basically highlight what a U.S. market with yield-curve control would look like into a rising inflation scenario.”
Chart of the Day
Sources: Federal Reserve Board of Governors, ICE Benchmark Administration, St. Louis Federal Reserve [FRED]
Chart note: “A ‘perfect storm’ of surging government debt levels, plunging real bond yields, rising coronavirus cases and deteriorating economic forecasts pushed the price of gold to an eight-year high [in late June], and some analysts now project the metal to top its all-time high within the next 12 months,” says analyst Frank Holmes of US Global Investors. Holmes finds himself in the company of a large number of analysts who have predicted the metal would reach all-time highs in the near future. He says gold is trading inversely to falling bond yields – something illustrated unambiguously in our Chart of the Day.