The gold market did not have a good start to the fourth quarter after losing for nine consecutive days. This was gold’s longest daily losing streak in the last seven years. Master analysts explain their opinions on the next move of gold.
There is still hope for the yellow metal!
Although gold closed Friday at its lowest level in the last seven months, it completes the week with a 1% loss. There is some hope for gold as it struggles to hold on to critical near-term support levels. However, the precious metal will remain sensitive to rising bond yields. As the yellow metal tested March lows, there was a significant sell-off in long-term bonds in the US bond market, pushing yields higher. This week the 30-year bond yield rose to 5% for the first time since 2007. At the same time, the yield on 10-year bonds reached the highest level in the last 16 years at 4.8%.
This steepening in the yield curve increases the opportunity costs of non-yielding assets. Therefore, it created a significant hurdle for gold. However, these difficulties may be short-lived. Because rising bond yields also create significant risks for the economy. Many analysts point out that this bearish steepening following an inverted yield curve is another strong signal of recession.
Will history repeat itself for gold?
Analysts also note that the current bond market selloff is similar to those seen in 1987, just before the United States fell into a brief recession. History doesn’t always repeat itself. However, it often rhymes. Although bond yields have upward momentum, this is the market’s last gasp, says Mike McGlone, senior market strategist at Bloomberg Intelligence. In this context, McGlone makes the following assessment:
I think the developments in the 4th quarter of 2023 will be shaped like a combination of 1987, when bond prices fell before the stock market crash, and 2008, when crude oil peaked. In 2008, gold fell from around $1,000 to $700, then rose to its highest level of around $1,900 in 2011. I see parallels.
Gold’s correlation with real returns has weakened…
cryptokoin.comAs you can see from , the mood in the gold market is quite gloomy. However, it should be noted that the gold market is relatively healthy despite the recent sales. Some analysts point out that despite the sell-off in the bond market, models show gold prices should be well below $1,800. James Robertson, an analyst at Grant’s Interest Rate Observer, says central bank demand is a key reason why gold’s negative correlation with bond yields has broken down. In this context, the analyst makes the following comment:
Gold’s weak correlation with real yields could be the first signs of a break in the US dollar’s international appeal. Gold is the only way for central banks in emerging markets to ensure their independence from the monetary turmoil caused by the US dollar.
Positive sign: Gold purchases by central banks continue
According to the World Gold Council, central banks purchased 77 tonnes of gold in August. Thus, it showed an increase of 38% compared to purchases in July. Meanwhile, central banks purchased 219 tons of gold in the last three months. Based on this, WGC’s senior analyst Krishan Gopaul underlines the following points in the report:
These latest purchases show that we are now firmly behind the net sales we saw in April and May, which were mainly driven by heavy, non-strategic sales from Turkey. We are therefore confident that the long-term trend of healthy central bank demand continues.
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