Gold takes a tumble as bond yields go agressively higher in overnight trading

(USAGOLD – 2/25/20210 – Gold took a tumble in overnight trading falling once again below the $1800 mark as financial markets, in general, appear to be shrugging off Fed chairman Powell’s assurances of ultra-easy money and concentrating instead on aggressively rising bond yields. Stock indices are level to down and the dollar index went below the 90 mark this morning. Gold is down $25 at $1781. Silver is down 25¢ at $27.78. Credit Suisse is one investor undeterred by the current weakness in the gold market. Per a recently released report posted at FXStreet, the bank forecasts a $2200 price target for 2021 but cautions that “gold will be susceptible to [Fed chair] Powell’s outlook on the economy and interest rates,” It says “the real rate environment and Fed stance remain supportive of gold prices, but the key to watch will be if yields continue to rise and of course, if the US Fed does, in fact, change its dovish stance – we think this is unlikely based on recent commentary highlighting higher employment as the priority vs. preventing inflation.”

Chart of the Day

overlay line chart showing the inflation indexed 10-yuear real rate versus price of gold
Sources:  St. Louis Federal Reserve, Board of Governors, ICE Benchmark Administration
Click to enlarge

Chart note: “If there is one catalyst that is a driving factor for higher gold prices,” writes Jason Tillberg at Seeking Alpha,” it’s negative real rates. Nobody likes the very thought of seeing their savings accounts or fixed income bonds paying a rate that is less than the rate of inflation.” This chart shows the strong long-term relationship between declining real rates and a rising gold price.

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