What's the relation of Gold and Bond yields?

Gold is Suffering. How Long Will the Fall Last?

Bond yields are causing a massive sell-off frenzy in financial markets.

The 10-year Treasury yield rose to the highest level in a year above 1.5%.

This, in turn, pushed investors to abandon gold, which doesn’t pay any interest and go to bonds for profits.

Gold fell by 4.4% in February and headed for its second straight monthly decline.

There are reasons to expect that this is not the end of the downfall yet.

The decline below $1750 will intensify the drop and maybe a good cue for sell trades. Resistance lies around $1800.

Did the analysts make a mistake when they expected gold to rise to new highs above $2,500 and $3,000 an ounce during 2020? Gold declined by 3% on Friday, lost $100 last week, dropped below $1717, and during February, it fell about 6%, to record its second consecutive monthly decline.

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What is happening with the US Bond Yields?

1. The increase in US Treasury bond yields raised suspicion in the markets last week, especially in the stock market and gold.
2. If bond yields rise for the right reasons, then it means economic growth is improving, inflation experiences a healthy rise, investors’ appetite for risk is back and consumers want to spend money.
3. The increase in 10-year Treasury bond yield to 1.6%, the highest level in a year, is due to several reasons:
   • expectations of a possible rise in inflation thanks to government spending and massive stimulus packages.
   • global economic recovery is shining on the horizon as vaccination is on the roll around the world.
   • the expected $1.9 trillion relief plan from the Biden administration to support the US economy.
4. These reasons caused a huge sell-off in the bond market, which led to lower bond prices and higher yields. Bonds and yields have an inverse relationship.
5. Jerome Powell didn’t comment on high yields. It appears that the Fed will stand and watch silently while it continues with the ultra-loose monetary policy to let inflation heat up.

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What is the relation between the decline in Gold and rising Bond yields?

Gold became less attractive as it doesn’t generate any returns, which pushed investors to abandon it and seek – higher US government bond yields.

The strength of the US dollar and the recent positive economic data in the United States, which mean the economy is back on the recovery path. That puts pressure on gold that shines in chaos.

Rising bond yields and the dollar are expected to be the focus of this week, which may add to the decline in gold.

Until the Federal Reserve hints that it will intervene to control the yield curve, gold prices will continue to suffer.

Let’s not forget, the strong competition from cryptocurrencies, and Bitcoin’s crazy rally in the past weeks added to the pressure on gold as well.

The 5 Factors of Gold Market Price

Is this the end of bullish Gold or are we waiting for a strong bounce?

1. Many expect gold to fall further this week after it fell to $1717 and approached $1,700, its lowest record in eight months.
2. However, some optimists see this decline as a great opportunity to buy gold and prepare for the climb this week. The reason is the fact that higher yields are affecting stock markets.
3. With the widening pain due to higher bond yields, investors will go back to gold as a safe-haven from losses, which would lead to a sharp rise in gold.
4. Besides the inflation factor supports the gold uptrend, as gold is a hedging tool when inflation rises – which is expected to happen due to the pumping of huge monetary and financial stimulus into economies – the near-zero rates environment will keep gold prices high this year.
5. Just the mere positive news about the approaching $1.9 trillion US stimulus package, after the House approved it and sent it to the Senate, strongly supported gold at the beginning of the week, and rose 1% to $1750 again.

Finally, the gold tycoons are currently betting, Warren Buffett among them, for gold to return above the record level of $2000, so they start stocking gold assets as they realize that a gold rally will have strong legs and will run long enough to make gains for several years.

The most important short-term obstacle to gold now is the rising bond yields, because it means things are improving, which harms our precious metal and reduces its attractiveness.

However, if gold survives it, we might see gold soar again.

So, which two teams do you support – waiting for the comeback or the sleeping bears?

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