XAUUSD XAUUSD XAUUSD

Gold finding support despite surging yields

Ole Hansen

Head of Commodity Strategy

Summary:  Gold prices, in a relatively steep decline for the past month, are showing signs of stabilizing after finding support around $1885. A development which is interesting as its unfolding while 10-year US Treasury yields have surged to a 16-year high on speculation the FOMC may have to hike rates further, and keep them higher for longer, as incoming economic data points to continued price pressure. Instead of yields the attention, for now at least, seems to focusing on a softer dollar, the Fed chairs speech at Jackson Hole on Friday and the BRICS meeting starting today.


Today's Saxo Market Call podcast
Global Market Quick Take: Europe


Gold prices, in a relatively steep decline for the past month, are showing signs of stabilizing after finding support around $1885. The five percent loss seen following the failed attempt to challenge $2000 last month has occurred during a period where the dollar has gained more than 2% while US 10-year Treasury yields have surged higher by 50 basis points to a 16-year high and speculation the FOMC may have to hike rates further, and keep them higher for longer, as incoming economic data points to continued price pressure.

While this remains the focus, asset managers and other potential investors may have their focus elsewhere amid the current high opportunity/funding cost for holding gold relative to short-term money market products. The cost of carry or opportunity cost in holding a gold position is equal to storage cost and the interest income an investor otherwise can receive on a short-term interest rate instrument like T-bills or a money market product. So, whether you own physical gold or hold and roll a futures position, there is no escape from the fact that it carries a cost, either through not receiving the +5% through a short-term interest rate instrument or through the roll into a higher priced forward price in the futures market.

These ongoing developments is reflected through the continued reduction in ETF holdings backed by bullion while the recent loss of momentum has driven a 65% four-week reduction in the net long held by hedge funds in the futures market. In the last two Commitment of Traders reporting weeks to Aug 15, the gross futures short held by these traders jumped 38k and based on the volume weighted average price (VWAP), the pain level is somewhere around $1935 in spot and $1965 in futures, so plenty of work to do before short covering becomes a feature. ETF investors meanwhile have been reducing their gold exposure on an almost daily basis since late May, during which time total holdings have declined by 128 tons to a 3-1/2-year low at 2800 tons.

However, despite these major headwinds not least surging real yields, gold is showing signs of stabilizing with the recent bid being supported by a softer dollar and rising silver prices amid higher industrial metal prices on continued speculation China will have to do more stimulus. In addition, investors may also be contemplating the risk of Powell doing a 180 in his speech on Friday at Jackson Hole, basically saying the Fed is done. While it's very unlikely the risk of such a move could be enough to sway a few short positions.

BRICS summit kicks off today

It is also worth mentioning the BRICS meeting, starting today, with Brazil, Russia, India, China and South Africa. The agenda is expected to center around the group’s expansion, with some 40 other nations lining up to join including Indonesia, Saudi Arabia, Argentina and Egypt. This could mean internal conflict as South Africa seems open to the idea, but Brazil is worried about its influence getting diluted. Meanwhile, Russia is attempting to ward off currency pressures at home and Xi is trying to find the most appropriate response to pressures on China’s property sector and economy at large.

But a larger group could mean more opposition to the West and a larger pursuit against the dominance of the dollar. This could, however, be positive for gold which acts as an alternate store of value and central banks continue to ramp up gold purchases in order to hedge against the dollar. Ahead of today’s meeting there has been increased talk of the BRICS nations developing a new reserved currency, potentially backed by gold, that could rival the US dollar as the global reserve standard. Many countries are seeking greater independence from the US financial system in response to continued weaponization of the dollar in the form of sanctions and trade wars.

With the dollar currently being used in 84% of cross-border trade, the potential for a successful alternative remains very low, and with that in mind gold remains the best option for central banks in need of reducing their exposure to hard currencies like the dollar, and such demand will likely continue to provide a soft floor underneath the gold market.

Gold’s recent steep decline was arrested on Monday following the break above the recent down trend, potentially signaling a period of consolidation, with the first level of resistance being the 200-day moving average, last at $1907.5 followed by $1925, the 21-day moving average and 38.2% retracement of the down move from the July high at $1987. - Source: Saxo
Silver bounced strongly on Monday after finding support ahead of $22.25, the June closing low, and it is currently testing a band of resistance around $23.37 as per the chart below. Also focus on industrial metals and especially copper for additional upside support, and not least gold - Souce: Saxo

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.