(This was an excerpt from Parallax Lite, originally published 7.15.19)
Gold has a strong inverse correlation to 5-year real yields. When real yields rise, gold prices tend to fall and vice versa. This is because money allocators chase a real rate of return and gold returns no yield. So, as real rates decline, gold becomes in favor. When real yields are negative (like in Europe), gold becomes extremely attractive.
The real yield proxy has bounced sharply following comments that the newest non-farm payroll and inflation print beat won’t change Powell’s stance on a rate cut this month. It can’t. Because the Fed acts on lagging data, the rate cuts have been effectively priced into assets.
Momentum in gold price would need to reignite, in our opinion, to create the next leg higher in gold. That could be unlikely considering how extended net-positioning is.
Near-term TACVOL range for gold futures is 1450.9/1347.
Gold has a strong inverse correlation to 5-year real yields. When real yields rise, gold prices tend to fall and vice versa. This is because money allocators chase a real rate of return and gold returns no yield. So, as real rates decline, gold becomes in favor. When real yields are negative (like in Europe), gold becomes extremely attractive.
The real yield proxy has bounced sharply following comments that the newest non-farm payroll and inflation print beat won’t change Powell’s stance on a rate cut this month. It can’t. Because the Fed acts on lagging data, the rate cuts have been effectively priced into assets.
Momentum in gold price would need to reignite, in our opinion, to create the next leg higher in gold. That could be unlikely considering how extended net-positioning is.
Near-term TACVOL range for gold futures is 1450.9/1347.