While inflation expectations are withdrawn, government bond yields continue to rise. According to strategist Christopher Vecchio, this is not a good mix for gold prices. The strategist sees gold prices likely to come under pressure if real interest rates continue to rise. However, the IG Customer Sentiment Indices show that gold prices have a mixed trading trend.
“Gold prices therefore face an unpleasant dilemma”
cryptocoin.com As we reported, gold prices had a mixed week, rising 0.87% against an equally weighted basket of eight major currencies. The key developments of the week came in the second half, when the European Central Bank finally acknowledged that persistently high inflationary pressures could trigger policy tightening this year and cause European bond yields to rise.
Similarly, U.S. Treasury yields rose as January’s U.S. nonfarm payrolls report broadly beat expectations and bolstered expectations for an aggressive cycle of rate hikes by the Federal Reserve. The Strategist evaluates this environment as follows:
Gold therefore faces an unpleasant dilemma. Rising nominal bond yields in the world’s advanced economies coincide with worsening long-term inflation expectations and cause an increase in real interest rates. Historically, rising real interest rates have been associated with softer gold prices. Now here too, it creates a difficult environment for gold prices.
Important data and developments that may affect gold prices during the week
It offers a much lighter global economic calendar next week, following a series of ‘high’ US economic data alongside several central bank rate decisions to kick off February. In fact, for the first three days of the week, there are very few possible data releases to cause volatility in the gold markets.
It will be the focus of a speech by European Central Bank President Christine Lagarde on Monday, 7 February.
On Wednesday, February 9, speeches by Bank of Canada Governor Macklem and Cleveland Fed President Loretta Mester will be the center of attention.
On Thursday, weekly US jobless claims will be tracked and the January US inflation rate report will be released. Later in the day, Bank of England Governor Andrew Bailey will make a statement. Philip Lowe, Governor of the Reserve Bank of Australia, will speak shortly.
On Friday, the February Australian consumer inflation expectations report will be released. The German inflation rate report for January and the UK 2021 4th Quarter GDP report will be published. In addition, the Fed’s Monetary Policy Report and the US Michigan consumer sentiment survey for February will be at the forefront.
What do the position data and customer sentiment index point to?
Looking at the positions in the futures market: For the week ending February 1, speculators reduced their net long gold futures positions to 189,762 contracts from 245,782 net long contracts held the previous week, according to COT data from the CFTC. The futures market currently has the lowest net long position since the first week of October 2021.
Individual gold trader data shows that 81.86% of traders are net-long, with a long-short ratio of 4.51 to 1. The net-long trader count is 2.90% lower than yesterday and 4.57% lower than last week. Net-short trader count is 3.51% lower than yesterday and 21.77% higher than last week.
According to the strategist, we often take an opposing view to the crowd sentiment, and traders’ net longs indicate that gold prices may continue to decline. Positions are more net long than yesterday, but less net long than last week. The strategist notes that the combination of current sentiment and recent changes gives an even more mixed gold trading bias.
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