Gold Price Fundamental Forecast: Neutral
- Gold prices[1] rose on Fed as falling yields increased its appeal as an anti-fiat asset
- Recession signals from the US offer a bearish medium-term XAU/USD outlook
- Near-term gold outlook neutral: eyes US GDP, Fed’s preferred inflation gauge
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Gold prices accelerated this past week, enjoying the best 5-day performance since the end of January, rallying as much as 0.82%. Some may point to the commodity’s supposed haven-linked status for its performance, especially after the S&P 500[3] wiped out all of its gains for the week on Friday. A closer look reveals a slightly different picture that instead, highlights gold as an anti-fiat asset.
Looking at the chart below, the gap between US 3-month and 10-year government bond yields turned negative for the first time since 2007. This is a closely watched section of the yield curve for recession signals. In fact, the gap had already been significantly narrowing since the plunge in equities towards the end of last year. This is also despite the +20% rise in the US benchmark stock index since January.
On a short-term basis, there tends to be a very close positive correlation between that and the S&P 500. So it is quite easy to come to the conclusion that gold is necessarily a safe haven. Rather, it should be noted that the commodity has no interest-bearing qualities. As such, when yields fall (the return on cash) gold tends to become relatively more attractive and vice versa.
