Gold Not Giving Up despite Rising Real Yields

Gold recently has been largely trendless in a range of $1900 to $2000/oz since mid-March. A multi-year high in the US Dollar seems to be no problem for the price of gold. At a glance, that could be seen as logical given the fact of rapid U.S. Treasury yields ascension and as much robust strengthening of the U.S. dollar. What's unusual about gold's latest thrust is that it comes amid rising real yields, and it may serve as evidence of impending solidification in the precious metal’s upward trend.

This is interesting given the extremities in almost everything else: DXY hits its highest level since March 2020; 10Y Treasury yield reached almost 3%, its highest level since December 2018; 2Y Treasury yield at 2.65%, its highest level since December 2018 also; Copper and many other basic metals are setting new record highs, while the entire commodity complex has not been far behind.

But it is the lack of action in gold despite the rise in real yields that captures analysts’ attention the most. Real yields and gold are inversely correlated. When real yields rise, gold falls, and vice versa. The inverse correlation between the two breaks down from time to time, as it did for much of 2018 during the U.S.-China trade war, but they normally reestablish ground quite swiftly.

In a recent report, technical analysts at Bank of America (BAC) said that gold appears to be forming a "cup and handle" pattern. They see any drop to $1,940 as a buying opportunity.

BofA isn't the only entity that remains bullish on gold. Analysts at S&P Global expressed their similar view on precious metals recently: "Our price outlook for gold appears healthy for the short to medium term, remaining about the $1,900 an ounce mark on the back of the geopolitical and macroeconomic uncertainties," reported S&P Global Market Intelligence analysts in a webinar recently.

Finally, Wells Fargo (WFC) is also not giving up on the precious metal as the bank sees gold prices moving above $2,000 this year. "The bottom line is that we still like gold and are maintaining our 2022 year-end target price range of $2,000-$2,100 per ounce".

So, all in all, despite all the mentioned headwinds, there is plenty of bullish sentiment in the marketplace, which will continue to support gold.