Gold has shifted above the 2000 mark amid rising geopolitical tensions, rising inflation, and expectations of possible rate cuts. However, the consistency of stronger economic data out of the US has created suspicions about whether the Fed will cut the rates around June or not. With this respect, DXY has been relatively stronger while the gold’s move has transformed from rally to sideways trading. Falling convenience yield – the green line – and speculative positions – the dark red line – give a good summary of this development. Speculators’ reluctance to accumulate long positions and postponing physical deliveries to farther maturities are clear indications of a softening demand for gold. Nowadays investors should look at rising expected real returns of 2-year treasury bonds as two-year horizon breakeven rates fall. Note that as the breakeven rates fall, the value of related currency may rise and this is consistent with weaker gold. The second chart below shows the rising 2-year expected return of US treasury bonds while gold’s technical indicators – stochastics – indicate gold’s potential shift below 1950 levels. Just beware of this risk.
