Source: IG Charts
GOLD FUNDAMENTAL HIGHLIGHTS:
- Gold Above $1800, What Next?
- Gold Buoyed By Deeper Negative Real Yields
- Fed Members Signalling Its Willingness to Run the Economy Hot
Gold Above $1800, What Next?
Gold prices are on course for a 6th consecutive weekly gain, the first time in over a year. However, upside momentum has slowed with spot prices in the last week rising a marginal 0.5%. In turn, this raises the question that with $1800 breached, what next?
Last month we highlighted that US real yields matter more for gold than the US Dollar on its march to $1800, which to a large extent has been true with Gold hovering around 9yr highs. As it stands, US real yields (TIPS) have slipped below -0.8%, edging ever so closer to 2012 lows of -0.9%. As such, gold stands to be the most notable beneficiary of real yields moving deeper into negative territory, therefore signalling that investors are unlikely to pull away from gold any time soon.
| Change in | Longs | Shorts | OI |
| Daily | 15% | -10% | 4% |
| Weekly | 13% | 5% | 9% |
Gold Buoyed By Deeper Negative Real Yields
Source: Refinitiv, US 10yr TIPS Yield (Inv), Gold (RHS)
Fed Members Signalling Its Willingness to Run the Economy Hot
“With inflation exhibiting low sensitivity to labor market tightness, policy should not preemptively withdraw support based on a historically steeper Phillips curve that is not currently in evidence. Instead, policy should seek to achieve employment outcomes with the kind of breadth and depth that were only achieved late in the previous recovery”
Fed’s Brainard, July 14th
A speech by Fed’s Brainard, who has been in favour of the Fed adopting yield-curve control (YCC) further hints that stimulus measures are here for the longer term, allowing for the economy to run hot, which in turn bodes well for the precious metal. However, the concern in the short term is the size of the appreciation in gold since the beginning of the year.
Economic Data Lacking, Rising Virus Cases Remains a Concern
Looking ahead to next week, the fallout of the EU summit is likely to set the tone to begin the week. However, while economic data is rather muted throughout the majority of the week, the key focus will be on the latest global PMI figures for July. Aside from PMIs, external factors involving rising virus cases in the Southern US states are likely to continue garnering attention as concerns increase over potential state-wide lockdowns.
Gold Price Chart: Weekly Time Frame
Source: IG Charts
