The bulls grow quiet: Gold bull to gold bull, I understand this is perplexing…and frustrating. The world’s ‘mother’ central bank is openly allowing loose monetary policy coupled with a ‘transitory’ inflation narrative.
- The fundamental back drop is positive for gold. Gold is a traditional safe haven asset from inflation and turbulent markets, but…
The technical set up favours the bears: Gold continues to hit and retreat from US$1,830. Failing to break through this level — three times, no less — paints a technically bearish picture for gold. More sideways action ahead.
Australian dollar buffers gold’s fall: Again, the Australian dollar is supportive to the gold price. US dollar gold fell while the Aussie dollar rose, so the Australian dollar gold price is less volatile right now, and sitting at AU$2,434 per ounce.
A word on the Reserve Bank of Australia: Much digital ink space has been dedicated to the Federal Reserve Bank (because of its large impact on the gold price), however today I’d like to briefly share some comments from the Reserve Bank of Australia (RBA’s) monthly meeting.
- The RBA kept the cash rate at 0.10%, though this article here says that 1 in 7 Australians would struggle to pay their mortgage rates rises…
- RBA governor Philip Lowe has warned that gross domestic product (GDP) for Australia is expected to ‘decline materially in the September quarter and the unemployment rate will move higher’ however;
- Lowe suggests the Australian economy will bounce back from the east coast lockdowns, saying: ‘This setback to the economic expansion is expected to be only temporary. The Delta outbreak is expected to delay, but not derail, the recovery. As vaccination rates increase further and restrictions are eased, the economy should bounce back.’
Gold lags real yields
Many investors have asked why gold isn’t rallying when real yields move further into negative territory. Well, the World Gold Council answered this earlier in the week, writing:
‘Real government bond yields via the US-10-year TIPS yield hit all-time lows in early August, which is normally a positive for gold as its opportunity cost improves. Despite the very strong correlation over recent years, we’ve seen the gold price lag this move at times, which appeared to be the case in August. This was likely a product of a stronger US dollar. We would not be surprised to see an uptick in the price of gold should real rates hold below -1%, particularly as month-end jobs data was weaker.’
The short answer is, there is often a lag between real yields and the gold price. The divergence we are witnessing right now — while unusual — has happened in the past. As you can see below, gold generally catches up.