Gold: Rising real yields an ongoing test

Rising real yields

It was another session of gains for US Treasury yields on the further end of the curve, and looking at yields in real terms has been a story of consistent gains now well above 2% and on the furthest end within the 2.3% handle.

That translates into an ongoing test for the non-yield precious metal’s price, which historically would be at far lower price levels than where they currently stand.

It has managed to defy its traditional correlation for quite some time leading some to believe it has broken, but for those who expect it to stick and it’s an open question of how long it can defy gravity.

The higher for longer narrative out of the US Federal Reserve (Fed) also hasn’t helped, and market pricing (CME's FedWatch) still a significant minority on a final 25bp (basis point) rate hike that at times hasn't been too far off a coin toss, and leaving the first rate cut from these levels between July and September of next year.

Of course, any changes in inflation (be it higher with energy prices on the rise yesterday) or employment, or even a matter that carries systemic risk could change those likelihoods. But for now, an investing alternative is present, and it has hit both risk appetite and bond proxies.

US data and upcoming events

US data showed durables a beat with growth of 0.2% in August and also up when excluding transportation, the weekly mortgage applications though suffering a -1.3% print.

There’s plenty on offer today with central bank speak including Chairman Powell, and tomorrow with personal consumption expenditures (PCEs) price index.

On the fiscal front, everyone will be noting whether a US government shutdown can be avoided this weekend, even if partial.

Rising real yields

It was another session of gains for US Treasury yields on the further end of the curve, and looking at yields in real terms has been a story of consistent gains now well above 2% and on the furthest end within the 2.3% handle.

That translates into an ongoing test for the non-yield precious metal’s price, which historically would be at far lower price levels than where they currently stand.

It has managed to defy its traditional correlation for quite some time leading some to believe it has broken, but for those who expect it to stick and it’s an open question of how long it can defy gravity.

The higher for longer narrative out of the US Federal Reserve (Fed) also hasn’t helped, and market pricing (CME's FedWatch) still a significant minority on a final 25bp (basis point) rate hike that at times hasn't been too far off a coin toss, and leaving the first rate cut from these levels between July and September of next year.

Of course, any changes in inflation (be it higher with energy prices on the rise yesterday) or employment, or even a matter that carries systemic risk could change those likelihoods. But for now, an investing alternative is present, and it has hit both risk appetite and bond proxies.

US data and upcoming events

US data showed durables a beat with growth of 0.2% in August and also up when excluding transportation, the weekly mortgage applications though suffering a -1.3% print.

There’s plenty on offer today with central bank speak including Chairman Powell, and tomorrow with the PCE price index. On the fiscal front, everyone will be noting whether a US government shutdown can be avoided this weekend, even if partial.

Gold technical analysis

Big losses yesterday with a move well past its previous first and second support levels favoring conformist sell-breakouts and lacking a trigger for contrarian buy-after-reversals, and helping cement its ‘bear average’ technical overview that at times was blurred between it and ‘cautious consolidation’.

The weekly technical overview remains ‘volatile’ owing to historic technical considerations, and price is already beneath key weekly support levels favoring conformist sell-breakout strategies there as well.

IG client* and CoT** sentiment for gold

As for sentiment, IG clients have pushed further into extreme buy territory with an increase from 80% yesterday to 82% as of this morning, with the bias amongst them in silver higher at 86%, in platinum at 83%, and palladium highest at 89%.

CoT speculators are also majority buy but not at the extremes just yet, last week’s report showing they remain in heavy long territory even after rising from 68% to 70% on a small rise in longs and larger unwind in shorts.

Daily gold chart with retail and institutional sentiment

^{* The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am for the outer circle. Inner circle is from the previous trading day.
** CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.}