Gold’s response to Friday’s stronger than expected US inflation print and tumbling consumer sentiment highlights the mixed focus that has kept bullion range bound for a while now. All year, gold has been battling rising treasury yields while at the same time finding support from investors looking for protection against inflation, stock market and geo-political risks. This battle culminated on Monday when traders spooked by the higher-than-expected inflation started to force the hand of the US FOMC by pricing in two consecutive rate hikes of 75 basis points.
The FOMC meets on Wednesday, just weeks after Fed Chair Powell poured cold water on the idea, the FOMC would step up its pace of rate hikes above 50 basis points, but the shared view that the central bank is getting behind the curve has forced a sharp repricing of yields and rate hike expectations, while also bringing forward the timing of a US recession.
Since Friday, US two-year yields has spiked higher by a record 0.54%, reaching a 15-year high at 3.35% while ten-year real yields, a much-used gauge for the direction of gold has spiked higher to reach 0.65% a level last seen in March 2019 and up from -1% at the start of the year. Based on the historic relationship between gold and real yields, some will argue that gold is currently overpriced by more than 300 dollars.