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Gold Climbs Despite Macro Headwinds

  • A multi-year high in the US Dollar seems to be no problem for the price of gold

  • Rising real yields, typically a bearish macro driver, have not stopped the shiny metal

  • Stock market sentiment is pessimistic and bond flows are downright bearish. Amid a rebound in commodities, gold ETF flows have been robust.

Gold prices approach $2,000 once again. After spiking to an all-time high in early March at $2,080, the yellow metal dropped under $1,900, albeit briefly, twice in March. Geopolitical fears tied to Russia’s invasion of Ukraine sparked a buying spree across most commodities, and gold was among those bid. A troy ounce rose more than 10% from its January trough under $1,800. After a reset lower over the latter three weeks in March, another commodity revival brings us back to the psychological $2,000 figure.

Higher Real Yields

What’s unusual about gold’s latest thrust is that it comes amid rising real yields. Typically, gold prices sputter when real rates climb. That long-time market correlation has broken down recently. When assets deviate from norms, attention should be paid. In this case, there might be more to gold’s move since it comes in the face of what should be a bearish macro trend.

Commodity Tailwinds

Our Global Cross Asset Market Monitor report, which hits client inboxes each Monday morning, reviews our latest thinking on the precious metal. Commodities continue to run hot in 2022 after posting enormous gains last year. Momentum is clearly with the bulls as money exits bonds and sentiment continues to be awful in the equity space.

Multi-Year Dollar Highs

Investors are finding solace in commodities. The old trading adage, “if you drop it on your foot and it hurts, then you want to own it” is en vogue. The theme could be long-lasting, and we expect commodity-related stocks to perform well over the coming 5-10 years. Another intriguing aspect of the recent jump in gold prices is that it comes amid a rising US Dollar. Thus, priced in other currencies, gold’s jolt is even more jarring.

Featured Chart: Gold vs. FX Market Breadth

chart of gold price vs gold fx market breadth indicator

Price Levels

There has been decent broad-based technical momentum behind the price move, buttressing the bullish argument. Should gold rise above $2,000, all eyes will be on the March peak. A move above $2,080 could lead to a wave of new money stepping in. Speaking of money flows, our weekly report highlights that ETF flows to gold are starting to heat up (albeit Gold Miners seem to have been left behind). The stage could be set up for a near-term advance. This is something to watch as we approach the notoriously shaky May through September period of a mid-term election year.

Bottom Line: Gold prices have been creeping back up as investors seem focused on other commodities and asset classes. While stock market sentiment is in the doldrums and the media fixates on rates, the commodity index is not far off its Q1 high. Gold prices in particular are rallying in the face of what are usually bearish macro trends.

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