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Gold

Gold price with another weak week

Analysts feel that investors see better chances in other asset classes.

•• 3 Min
Gold price with another weak week

The gold market took another pullback on Wednesday as positive economic data and risk-taking sentiment continued to push investors into better performing assets. April Comex Gold Futures were last traded at $ 1,773.50, down 1.42% on the day. With inflation one of the biggest risks this year, many analysts wonder why the precious metal is underperforming, especially given the popularity of cryptocurrencies as a "safe haven". "If we look at the development of US inflation expectations, we see the 10-year breakeven at 2.22% - the highest level since 2014 - and almost consistent with the fulfillment of the Fed's inflation mandate over the next ten years," said Pepperstone Research Director Chris Weston. "Traders have best expressed higher inflation expectations through short duration exposure to the bond markets, with the 5s vs. 30s Treasury yield curve rising to 152bp (highest since 2015) while the short-end 2s vs. 5s rose from -14bp to the current 38bp (the highest value since March 2018). So why is gold fighting when markets like crude oil, copper, cyclical stocks, and even cryptocurrencies are viewed as a "go-to hedge outside of the bond market," Weston asked. After a cautious start to the year, gold is under steady downward pressure due to rising yields, a higher US dollar and risk-taking mood in the market. "Gold is working down the standard deviation channel, struggling to find any buy confidence at all. I think that makes sense at this point as the market is sensing inflation. Still, it's hardly at a level that screams the Fed is losing control has - we may have to see 10 year US interest rates above 3% for that and that will take months, if at all, "noted Weston. The inflation scenario, once played through, would bring gold to life this year, Weston said. That said, we are getting an overheated US economy fueled by massive closing of the output gap as the US Treasury Department releases 2.8 tons of fiscal spending this year while the Fed dismisses inflation as "temporary" and then the market snorts to stifle movement at the far end of the Treasury curve. This is nirvana for gold and cryptocurrencies because this is where real returns are falling and gold is being labeled as a store of value, "he noted. And while this scenario is a possibility, there is a lot of skepticism surrounding it, Weston added. "The US Federal Reserve \[will\] likely discuss reducing its bond-buying program later this year, and if we don't see evidence of a repeat of 2013 (taper tantrum), which the Fed sees as its greatest risk, then I believe that it will leave long-end rates untouched, he said. "Conversely, overheating the economy if the Fed cuts its QE and lets rates rise at the long end could actually hurt the gold market, but that depends on the USD and real returns from." This confusion about what lies ahead of the gold market is also evident in the futures and ETF space. There has been no significant move in the CFTC weekly report since September as the ETF space is losing stock.

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