Gold looks to the UK and Italy for support
Head of Commodity Strategy
Summary: Gold took a beating last week at the hands of US rate hike expectations and unexpectedly strong data. Now, renewed dollar strength against EUR and GBP is keeping the pressure up on the yellow metal.
Following on from last Friday’s PPI, the market will be looking ahead to the release of October US CPI on Wednesday. The headline figure is expected to show a year-on-year rise of 2.5%, up from 2.2% in September. The US bond market has not yet bought into a rising inflation outlook with the 10-year breakeven yield having stayed close to 2.1% all year. As a result of this the equivalent 10-year real yield, currently at 1.13% and up from 0.4% at the beginning of the year, has been rising almost in line with the rise in nominal yield. Rising real yields pose a challenge to gold given the opportunity cost of holding an asset that does not pay a coupon or a dividend.
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