We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Wall Street
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bullish
USD/JPY
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • Commodities Update: As of 18:00, these are your best and worst performers based on the London trading schedule: Silver: 0.56% Gold: -0.04% Oil - US Crude: -0.76% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/dDwLgcqJsI
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 97.06%, while traders in US 500 are at opposite extremes with 71.48%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/O6NcsvAJNS
  • The #Euro may be coiling up for a breakout against the US Dollar as the third quarter of 2020 gets underway. What will drive price action? See our trading guide from @IlyaSpivak to find out here: https://t.co/irBdf8mE7H https://t.co/h5bJePYxGg
  • Indices Update: As of 18:00, these are your best and worst performers based on the London trading schedule: FTSE 100: 0.47% France 40: 0.44% Germany 30: 0.38% US 500: -0.16% Wall Street: -0.27% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/4oDLGEMu1T
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 97.06%, while traders in US 500 are at opposite extremes with 71.21%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/m74wuZZKeH
  • Commodities Update: As of 16:00, these are your best and worst performers based on the London trading schedule: Silver: 0.42% Gold: -0.03% Oil - US Crude: -0.83% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/4cYiwWIL4E
  • What financial job opportunity in which location makes the cut for you? Find out! https://t.co/rrCpMM85Rt https://t.co/4rS0V6FiEm
  • Forex Update: As of 16:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 0.33% 🇦🇺AUD: 0.20% 🇨🇦CAD: -0.00% 🇪🇺EUR: -0.02% 🇯🇵JPY: -0.03% 🇬🇧GBP: -0.05% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/GOEvZ8H1yT
  • Indices Update: As of 16:00, these are your best and worst performers based on the London trading schedule: France 40: 0.33% Germany 30: 0.31% FTSE 100: 0.29% US 500: -0.23% Wall Street: -0.44% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/0oIElrc66l
  • The Federal Reserve System (the Fed) was founded in 1913 by the United States Congress. The Fed’s actions and policies have a major impact on currency value, affecting many trades involving the US Dollar. Learn more about the Fed here: https://t.co/afobcd9GRa https://t.co/bn3jPwlxks
Gold Breakdown Comes as US Treasury Yields, Real Rates Rise

Gold Breakdown Comes as US Treasury Yields, Real Rates Rise

2016-11-28 04:55:00
Christopher Vecchio, CFA, Senior Strategist
Share:
Gold Breakdown Comes as US Treasury Yields, Real Rates Rise

Fundamental Forecast for Gold:Neutral

- Gold falls back under $1200/oz on weekly closing basis for first time since February.

- Metal prices have been in a freefall since November 8 – when the wave Republican election boosted hopes for fiscal stimulus and the end of gridlock in Washington DC.

- Rising US real yields – US Treasury yields minus inflation – have been rising steadily since mid-August, undercutting demand for assets on the bottom of the yield totem pole.

Gold finished down for the third week in a row, driven by the same set of factors since the November 8 US Presidential election: a strong US Dollar, underpinned by rising interest rates globally but mainly out of the United States. In plain terms, Gold is being driven by a classic fundamental underpinning: how US real yields are evolving.

Real yields are inflation-adjusted yields: in this case, the US Treasury 10-year yield minus the core inflation rate. Why does this matter? Investing is all about asset allocation and risk-adjusted returns. On the risk-adjusted side, for example: if asset X has an expected return of 10% with a standard deviation of 8%, and asset Y has an expected return of 12% with a standard deviation of 15%, asset X is the superior choice given the risk trade-off. On the asset allocation side, it’s about achieving required returns given the investor’s wants and needs. If inflation expectations are rapidly increasing, you would expect to see fixed income underperform: why would you want to have a fixed return when prices are increasing? On a real basis, your returns would be lower than otherwise intended.

The early part of 2016, when Gold and Silver were rising rapidly, was characterized by an environment in which US real yields were falling: inflation was steady and soft, and US Treasury rates were falling. Falling US real yields means that the spread between Treasury yields and inflation rates are decreasing, decreasing the penalty for holding a low yielding asset. If Gold yields nothing, has an estimated cost of carry of -2.4%, and only can return capital appreciation, it would best suited to rally when US real yields fell.

Accordingly, Gold is not a desirable asset in a rising real yield environment, which is what we’ve been seeing develop over the past several weeks, but in particular in November. The US 10-year real yield (Treasury yield minus core inflation) rose from -0.83% on July 6 to -0.32% on October 31. Heading into the coming week, the 10-year real yield had risen to +0.23%.

While the prospect of US yields continuing to run higher and Gold lower persists, particularly if the market continues to pull forward expectations for rate hikes beyond December, the coming days don’t seem likely to provide the fodder necessary to keep the recent trend in place. Rising political risk out of the Euro-Zone and some reignited tensions over the US Presidential election results may yet boost demand for precious metals as a hedge against American and European policymakers’ incompetence, at a minimum. –CV

To receive reports from this analyst, sign up for Christopher’s distribution list.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.