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Is the gold ready to tear even more? Four key charts to watch

(Bloomberg) – Just as vaccine rollout and economic optimism left gold resembling last year’s metal, it sparked a rally. Bullion is one of the top performing commodities this month here, wiping out almost all of this year’s losses. Investors have been drawn to the lure of gold as a hedge against inflation, as the Federal Reserve maintains its monetary stimulus and says the price pressures should prove temporary. Spot gold was little changed on Friday at $ 1,895.93 an ounce, with prices tracking a weekly gain. Diego Parrilla, who heads the Quadriga Igneo fund, is among those who have recently increased their exposure to gold, claiming that central banks will not risk raising interest rates to fight inflation for fear of “pricking the huge bubbles” they have created. “We have entered a new paradigm that will be dominated by deeply negative real interest rates, high inflation and low nominal rates – one,” said Parrilla, who manages $ 350 million. Yet gold is ultimately a safe haven asset that, by conventional logic, should suffer as the economy booms. So, can the last rally be supported? This is the most burning question in finance this year, and possibly the most important for gold: will current inflationary pressures be transient or persistent? If you ask the Fed, the answer is number one. Parts of the bond market disagree, with market-based measures of long-term inflation expectations reaching their highest level since 2013 at the start of the month. This is a sweet-spot for gold, which benefits when monetary policy keeps bond rates low even as inflation persists. Real yields on Treasuries have recently plunged deeper into the negative, improving the attractiveness of bullion. The next step will be crucial. Any hint that the Fed is lowering due to inflation or a strong labor market could lead to a surge in bond yields – triggering a repeat of the taper tantrum seen in the aftermath of the financial crisis, when gold rose. fell 26% in the space of six months. position where I think you are coming is a place where it becomes very vulnerable to the narrative of the reduction, ”said Marcus Garvey, head of metals strategy at Macquarie Group Ltd., on the other hand, anything slowing the recovery The global economy – whether it’s poor job data or new virus variants – is expected to see real yields plunge, in favor of the metal. Dollar Driver The dollar has been another major driver of gold this year. After initially gaining momentum as the U.S. vaccination schedule edged out the rest of the world, it has declined since March as other countries closed the gap, offering a tailwind for the precious metal. The median forecast compiled by Bloomberg suggests only a slight strengthening.If it is wrong, whether due to a divergence in the global recovery or the surprising fervor of central banks in other countries, the implications for bullion could be important. the year came as exchange-traded funds reduced their holdings of metal by 237 tonnes in the four months leading up to April. Hedge funds traded on the Comex also reduced their exposure to the lowest since 2019 in early March. In the second quarter, the flows started to reverse. If this gains momentum, gold could find another higher leg. “There is still potentially a lot of pent-up investment demand,” said Ole Hansen, head of commodities strategy at Saxo Bank A / S. “Yet the positions are relatively small.” Others, including Robert Jan Van Der Mark of Aegon NV, who reduced their exposure to gold in November following the vaccine announcement, remain to be convinced. “With the vaccination rollout on track and economies reopening, we have less appetite for a safe haven / stagflation type of asset in the portfolio,” he said. Bitcoin Bounce Often featured like a digital bullion, Bitcoin’s rally in the first few months of the year has been demoralizing for gold bulls. Both assets are favored by those who fear hyperinflation and currency degradation, from so the cryptocurrency’s outperformance may have turned the heads of potential bullion buyers. Bitcoin has fallen about 40% from its mid-April high, with substantial cash outflows. gold could be a beneficiary. (An earlier version of this story corrected the central bank’s spelling in the second paragraph.) More articles like this are available at Subscribe now to stay ahead with the source most reliable business information. © 2021 Bloomberg LP


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