Gold Luster Fading, Shrinks as Bond Yield Rises
Gold prices are tracking lower in a counter-trend with the USD, trading at a seven-week high. The retracement of gold prices is when bond yields are rising, and the US stock market is vibrant, reversing last week's sharp losses. Overly, a strengthening greenback could see commodities and precious metals priced in USD, despite the World Gold Council expecting a revival in the yellow metal demand in 2021.
Gold and USD have an inverse relationship, and the former will contract as the latter strengthen. Presently, a soaring greenback backed by investor confidence and, among other things rising bond yields forcing capital outflow from non-interesting bearing gold translates to lower prices for the yellow metal. This may be the situation in Q1 2021 following a World Gold Council report confirming the plunge in demand for the yellow metal in 2020. Although they are optimistic--saying demand will pick up in the medium term, hopes of a faster global economic recovery, coronavirus infection rate flattening, and gains in the stock market are USD's tailwinds, pushing gold prices lower.
Impact on Gold:
Bearish. The yellow metal price forecast remains bearish as capital is being withdrawn to a relatively risky stock market and the bond market backed by the US government's sovereignty. With a strong USD, gold losses may be protracted in the days ahead.
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