Gold Prices Seeing Little Love As Bond Yields Remain At 2011 Highs
(Kitco News)- U.S. bond yields could be capped fornow at their recent seven-year high, but that doesn’t mean that gold is out ofthe woods just yet.
Analysts note that higher bondyields are keeping a lid on gold as prices remain below $1,200 an ounce.December gold futures last traded at $1,192, relatively flat on the day.Meanwhile, the U.S. 10-year bond yield last traded at 3.22%.
In an emailed comment to KitcoNews, Jameel Ahmad, global head of currency strategy and market research atFXTM, said that he doesn’t see bond yields pushing much higher in the short term.
“I would say it is going to takequite a significant amount of time in financial market terms for 10-year yieldsto move that much higher than current levels. The view that we could see 4% oneyear from now is reasonable,” he said.
Harry Tchilinguirian, global headof commodity markets strategy at BNP Paribas, said in an email to Kitco Newsthat bond yields can push higher if the U.S. economic data shows that theeconomy is still firing on all cylinders. He added that this would be bad forgold prices.
“If U.S. economic data continuesto surprise to the upside, then expectations around the number of Fed ratehikes in 2019 can be revised up and consequently nudge bond yields higher,generating just enough incremental opportunity cost in holding gold to send theprice of the yellow metal lower,” he said. “One also has to account for thefact that the $1,180 to $1,200 /oz price range for gold is an importantpsychological barrier for the market to breach on the downside as it invitesbuying the dips by private wealth managers. This helps in part explain therecent disconnect between yield and gold prices.”
However, Ahamad warned that goldinvestors should not expect to see a recovery in gold prices even if bondyields are capped. For the gold market, Ahmad said higher bond yields willcontinue to support the U.S. dollar as investors see value in U.S. sovereign debt.
“The news that the 10-year yieldhas moved above 3.25% for the first time since 2011 could possibly encourageinvestors to take their money away from emerging assets, and invest in the[U.S. dollar] instead,” he said.
Looking ahead, Ahmad said that heexpects that in the current environment, gold could remain under pressure forthe rest of the year and could fall to 2016 lows.
“I do see more pressure in thecommodity until the end of the year and I wouldn't be surprised to see goldbreak below the $1,150 level at the very least. Basically, as long as the dollaris in demand, the outlook remains negative for gold prices,” he said. “Only twofactors can break King Dollar at this point: a removal of trade tensions, or aheavy round of comments from the Trump Administration that the dollar is toostrong.”
By Jim WyckoffFor Kitco News
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