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Gold Price Outlook: Real US Rates Matter More than US Dollar for Gold

Gold Price Outlook: Real US Rates Matter More than US Dollar for Gold

2020-06-25 11:15:00
Justin McQueen, Analyst

Gold Price Analysis & News

  • US Dollar is Not the Only Factor For Gold
  • Lower Real Rates is Supportive for the Gold
  • Gold Shows a Higher Correlation with Real Yields Over the US Dollar

Gold prices continue to have $1800 within its sights as the precious metal hovers around a 7 ½ year high. However, while the pullback in the US Dollar has allowed for gold prices to remain buoyant, there have been other factors that have been a bigger driver for the precious metal.

Gold BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 3% -10% 1%
Weekly 13% 1% 11%
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US Dollar is Not the Only Factor For Gold

Gold Price Outlook: Real US Rates Matter More than US Dollar for Gold

Source: Refinitiv

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Lower Real Rates is Supportive for the Gold

Lower US yields in light of the ultra-loose monetary conditions provided by the Federal Reserve have kept gold prices on the front foot, while market based inflation measures have ticked up, resulting in real rates falling deeper into negative territory. That said, with real rates dropping to a fresh 7 year low, we believe this has been the key driver to pushing gold prices higher, which is evident by the notable correlation between real rates and gold in figure 2.

With this in mind, the outlook remains supportive for the precious metal, particularly with the Federal Reserve reviewing the possibility of utilising yield curve control (placing a cap on short-term US yields) and thus could see real rates remain suppressed.

10YR Real Rates vs Gold

Gold Price Outlook: Real US Rates Matter More than US Dollar for Gold

Source: Refinitiv, 10yr Real Rates (RHS) inverted, Gold (LHS)

Coronavirus Second Wave Concerns

Another factor to keep in mind has been the rising uncertainty over the number of record daily COVID cases across several US states, which is becoming a more global factor again, given the recent upticks in China, Germany, and Australia. However, while this has contributed to the recent shift lower in sentiment, supporting gold prices, it may take more state-wide restrictions to prompt a notable pullback in risk appetite. As such, this will remain on the radar for the precious metal.

Gold Shows a Higher Correlation with Real Yields Over the US Dollar

Gold Price Outlook: Real US Rates Matter More than US Dollar for Gold

Source: DailyFX, Refinitiv

Gold Price Chart: Weekly Time Frame

Gold Price Outlook: Real US Rates Matter More than US Dollar for Gold

Source: IG

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

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