Gold Price Analysis: XAU/USD to lose some of its lustre as real yields rebound

Gold’s price tends to rise when the real yields of US government bonds fall and vice versa. In the view of economists at Capital Economics, the real yields of long-dated Treasuries are set to rise, subsequently, XAU/USD should retreat during the remainder of this year.

See – Gold Price Analysis: XAU/USD to test $1,900 amid data disappointments – TDS

Gold’s outlook depends heavily on what happens to the real yields of long-dated Treasuries

“While the recent rebound in the price of gold may owe something to greater demand for safe havens in response to faltering equity prices, as well as to cryptocurrencies coming under pressure, most of it can probably be explained by a marked pull-back in the real yields of long-dated Treasuries after their surge earlier this year. We doubt the pull-back will last, though, and are sticking to our forecast that the price of gold will end 2021 at $1,600/oz.”

“The retreat of real yields of long-dated Treasuries so far in the second quarter of 2021 probably reflects a feeling that good news on growth – after a successful vaccine rollout and huge fiscal stimulus – is largely discounted and might be hampered by supply shortages. We don’t expect it to continue, though, which leads us to expect that gold will lose some of its lustre.”

“Our view that the real yields of long-dated Treasuries will rebound is partly because we anticipate that the recovery in the US will remain quite healthy despite supply shortages that threaten to hamper output.”

“Measures of long-dated inflation compensation have already risen a long way above 2%. This suggests to us that investors will anticipate more monetary tightening in the distant future if they keep edging up, especially if the Fed continues to stress that it sees current inflationary pressure as transitory and remains in no mood to tighten policy while the labour market is below ‘full’ employment.”

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