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Gold investors: pay attention to bond yields not U.S. dollar - HSBC

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(Kitco News) - A weaker U.S. dollar Monday is helping to provide some momentum to gold prices, which are back to within striking distance of $1,800; however, one firm is warning gold investors to pay more attention to bond yields than the U.S. dollar.

In a recent note to clients, commodity analysts at HSBC said that they expect bond yields to have a bigger impact on gold prices than U.S. dollar fluctuations. They noted that recently gold and the U.S. dollar have been positively correlated.

Normally, gold trades inversely with the USD. But for many months it has tended to trade directionally with the USD. We have submitted that this may be because investors are looking for safe havens and have moved into the USD, US Treasuries and gold simultaneously,” the analysts said.

Looking at bond yields, the analysts said that last month gold really struggled as the yield on 10-year notes rose to 95 basis points, its highest level since the COVID-19 pandemic decimated the global economy.

Since the early June rally, bond yields have been relatively unchanged hovering around 70 basis points.

Although the gold market could see some further profit-taking and lower prices in the near-term, analysts at HSBC said that see firm support in the marketplace.

August gold futures last traded at $1,797.60 an ounce, up 0.42% on the day.

“Gold can give up more ground near-term. But accumulated risks, combined with long-term stimulatory monetary and fiscal spending, will likely put a near-term floor on gold prices,” the analysts said.

HSBC’s comments on gold and bond yields come as speculation grows that the Federal Reserve will introduce yield curve control before the end of the year.

According to the minutes of the June monetary policy meeting, the Federal Reserve continues to research a plan that would see them buying government bonds to keep yields below an unspecified yield.

Many analysts have said that this proposal would be extremely bullish for gold because any potential rise in inflation in a low bond yield environment would create negative real yields.

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