Rising Real Interest Rates Could Push Gold Prices $200 Lower – ANG Traders
(Kitco News) - If history holds true, gold prices could drop $200 as the market adjusts to rising bond yields, according to one trading firm.
In a commentary on Seeking Alpha, analysts at ANG Traders said that gold is vulnerable to further weakness in the near-term, with the negative correlation between bond yields and gold reasserting itself in the marketplace.
For many analysts, gold’s recent resiliency in the face of rising real interest rates has been a bit of a mystery. However, ANG said that market norms are now prevailing.
Strong selling pressure Tuesday pushed the gold market down 2% with prices dropping through critical support at $1,300 an ounce. The selloff came as 10-year bond yields rose through 3.00%, hitting its highest level since 2011. Gold remained under pressure through Wednesday's session, settling the day at $1,291.50 an ounce.
At the same time, inflation pressures have remained relatively unchanged, pushing real yields higher. Data from the U.S. Treasury Department shows that real interest rates, as of Tuesday, rose to 99 basis points, up 45% since the start of the year.
“The last time that the gold-inflation correlation went negative was in August of 2016, and as the correlation returned to normal, gold suffered a $200 drop,” said the trading firm in its commentary. “Now that the gold-inflation correlation has returned to normal, and gold has broken support, there is an increased chance that gold will experience a 10%-20% drop in price, just like it did in the latter half of 2016.”
ANG said that there is further upside potential in both the U.S. dollar and 10-year bond yields. While bond yields have pushed to multi-year highs, the U.S. Dollar Index has pushed to a five-month high, last trading at 93.39 points.
“The price break below $1,300, makes it highly probable that gold will experience a significant move lower in price over the next days and, perhaps, weeks,” the analysts said.