Gold Price Forecast: Vulnerable To A Pullback As Yield Resurges. US Inflation Data In Focus

Gold prices retreated slightly during the APAC session on Wednesday as the US Dollar (DXY) index rebounded alongside longer-term Treasury yields. In the prior day, gold prices posted the biggest jump in two months as Treasury yields retreated after a strong 3-year note auction. A decent pullback in the US Dollar (DXY) index on Tuesday offered gold prices some relief after a prolonged selloff. This rebound may once again prove to be short-lived however, if yields resume their upward trajectory amid a broad reflationary theme. The upcoming 10- and 30-year Treasury note auctions will be in focus this week.

On the macro front, gold traders are eyeing US February consumer price index data for clues about the Fed’s future tapering trajectory. In view of an improved recovery outlook and surging raw material prices over the past few months, upward price pressure is expected to emerge in the months to come. Any signs of inflation overheating may intensify market speculation about the Fed tapering stimulus efforts and may fuel further strength in longer-dated yields as well as the US Dollar. This scenario may exert further pressure on precious metals.

Meanwhile, markets await a fresh US$ 1.9 trillion US Covid relief package to be approved by the House this week, though the expectation has largely been priced in and therefore should have limited market impact.

US real yields(nominal yield – inflation), represented by 10-year Treasury inflation-indexed securities, fell 7bps to -0.69% on March 9th from a day ago, offering bullion prices some relief. Real yields exhibit a historically negative correlation with gold, with their 12-month correlation coefficient standing at -0.89. Further rises in real yields may serve to undermine gold prices, which is non-yielding.

Gold Prices vs. 10-Year Treasury Inflation-Indexed Security

Gold Price Forecast: Vulnerable to a Pullback as Yield Resurges. US Inflation Data in Focus

Source: Bloomberg, DailyFX

The release of US inflation figures may also lead to heightened volatility in the US Dollar (DXY) index, which tends to be inversely correlated to gold prices. They have a correlation coefficient of -0.69over the past 12 months.

1 2
View single page >> |

Disclosure: See the full disclosure for DailyFX here.

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.