Gold focus turns to bond auctions and potential ECB taper Gold focus turns to bond auctions and potential ECB taper Gold focus turns to bond auctions and potential ECB taper

Gold focus turns to bond auctions and potential ECB taper

Ole Hansen

Head of Commodity Strategy

Summary:  Gold's recovery following the early August collapse is showing signs of running out of steam after the price once again failed to penetrate an area of resistance towards $1835. With muted buying interest from money managers due to lack of momentum and diversification demand, the recent buying has instead been carried out by central banks, the physical centers in India and China as well as retail investors. Short-term focus turning to US bond auctions and Thursday's ECB meeting which may well spring a surprise.

Gold’s month-long recovery following the early August collapse is showing signs of running out of steam after the price once again failed to penetrate an area of resistance towards $1835. Precious metals jumped on Friday following a surprisingly weak US job report, which initially helped weaken the dollar, and while silver managed to break higher, gold’s attempt once again fell short, just like it has done on six previous occasions since mid-July.

While the timing of the Fed taper may have been delayed by the recent weakness in data leading the prospect for zero US growth in the third quarter, gold has for several reasons so far failed to capitalize on this emerging tailwind. First of all, the continued strength in global stocks reduces the need for diversification and secondly, the dollar has yet to break support following its recent upside rejection. In addition and despite the recent economic data weakness, a heavy treasury bond auction calendar combined with rising wage pressures has been sending bond yields higher, thereby further reducing the short-term prospects.

Real yields, currently around -1% is at risk of rising further but as we have mentioned in previous updates, the dislocation between gold and real yields this summer, could justify a 20-25 basis point rise in yields without negatively impacting gold to much. Whether or not that plays out remains to seen, but in our opinion it makes us believe the direction of the dollar, more than yield developments, should be the main short-term focus.

With gold struggling to move higher, silver has been allowed to claw back some the 15% it lost relative to gold since July. After hitting an eight-month high last month at 77.50, the XAUXAG ratio, which reflects the price of one ounce of gold measured in ounces of silver, dropped to 73.50 on Monday, before once again being bought with traders turning more defensive for the above mentioned reasons.

Speculators have in response to the recent recovery been adding length back in COMEX gold futures, but at 99k lots or 9.9 million ounces, the net long position is still only one-third of the 285k lots peak from February last year when gold traded around $1640. In silver, months of underperformance has seen the net-long slump to just 12.4k lots which represents a 75% drop since the latest peak in May.

With money managers mostly absent on the buy side in recent months, buying has instead been seen from key physical markets such as India and China, together with robust interest from retail consumers snapping coins from US Mint and Pert Mint at the fastest pace in years. Perhaps a sign that retail investors in some parts of the world being charged negative interest on their bank account have chosen gold as a hedge against rising inflation and inflation fears. In addition central banks around the world remains active buyers with the World Gold Council reporting net buying up until July of 347 tons compared with 263 tons for the whole of 2020.

From a technical perspective a close below the 200-day moving average, currently at $1810 may trigger renewed weakness, initially to $1793 and potentially as far as $1770. Apart from the technical outlook investors are likely to focus on Thursday’s ECB meeting, and the rising chance that bank may hit the taper button before the Federal Reserve. If it happens and EU bond yields jump it may support some additional gold-friendly dollar weakness against the euro, while on the other hand further raise the prospect for the Fed potentially acting sooner as well.

Overall we maintain a positive outlook for gold given the prospect for peak growth and no change in official interest rates for several quarters. For now, however, there is no reason to chase the market as long gold fail to cross over to the other side of $1835.

Source: Saxo Group


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.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full 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


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

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.