Gold Gains to Unwind Further, Based on Dollar and Real Rates
Gold is trading higher today, but a model based on real rates and the dollar suggests any gains will likely reverse.
Using a model that Cam Crise often refers to, which correlates changes in bullion with shifts in real rates and the DXY index, the past two sessions show excess returns.
The precious metal rallied in the run up to the election and that outperformance had started to unwind in the wake of Trump’s victory.
Investors are now favoring the dollar, with which the precious metal has a strong and consistent inverse relationship. Plus, the surge in the dollar has also trimmed the appeal of gold because the precious metal is priced in the currency.
Meanwhile, US nominal bond yields have been rising on concerns that Trump’s policies may introduce inflationary pressures. Such a dynamic is likely to persuade the Fed to cut interest rates more slowly than the market currently expects, further undercutting the appeal of gold.
Source : Bloomberg
