The charts below highlights some of the recent developments across other markets which have led to the current weakness in precious metals. Apart from record highs in U.S. stocks the most important development has been the near one-third collapse in the amount of global negative yielding debt. Since hitting a peak above $17 trillion back in August it has now dropped to $11.6 trillion, a five-months low.
An apparent revolt against negative interest rate policies by central banks, especially in Europe, has led to a major adjustment with the yield on ten-year German government bonds rising from -0.75% to the current -0.25%. Japan, the architect of negative interest rates, has seen its ten-year JGB almost return to 0%, the highest since April.
Meanwhile in the U.S. ten-year yields have almost returned to 2% after rising by more than 50 bp since August. These developments have supported a for gold adverse move higher in real yields while cutting the market expectation for further U.S. rate cuts. So much that the prospect for another rate cut before December 2020 has been slashed to just 58%.
Hedge funds which tend to be the fastest out of the block when it comes to responding to a change in the technical and/or fundamental outlook have so far been relatively slow to react. Before last week’s additional weakness, the fund net-long in COMEX Gold futures was cut to 230,000 lots from 292,000 record six weeks earlier. The latest reduction was primarily driven by fresh short position being added.
Investors using bullion-backed Exchange-traded funds tend to more sticky but last weeks move lower helped trigger a 21-tons reduction to 2538 tons, a one-month low.