PRESS ROOM
Gold feeling the pinch from rising yields
Thursday 04th March '21
The main driver for falling gold prices of late is the fact that Treasury yields have risen quite sharply. Gold and Treasuries have a strong relationship. But Treasuries aren't the only thing that drive gold prices. Inflation, dollar depreciation also drive gold prices. Today inflation is very tame, but inflation expectations are rising. With very strong monetary support there is potential for inflation to rise substantially in future years. So many investors maintain a financial hedge against future inflation using gold. But for today with relatively weak inflation gold prices are subdued. But this potentially opens up a good entry point. Turning to currency, we believe that the US dollar is on a structurally weak path, with rising indebtedness. US dollar depreciation has only just started and given the lag in the relationship with indebtedness, this trend could last for several years. So we believe the headwinds in gold could be quite temporary, with gold likely to do better as inflation and dollar depreciation pick up pace.”