Gold is gaining 0.2% to $1,779.10 an ounce after closing lower yesterday on comments from Janet Yellen. The Treasury Secretary and former Fed Chair suggested that the central bank may raise interest rates to prevent the economy from overheating.
However, she later clarified her comments by saying that she was not anticipating or recommending a rate hike. In her view, inflation is not a sustainable problem for the economy when it rebounds from the pandemic.
Gold has been looking a bit grim of late. After a 24.5% rise in 2020, the price of the yellow metal in dollars has fallen by 6% since the beginning of the year to hover in the area of 1,780 dollars per ounce.
Compared to its historical high of August 6, 2020, at 2,067 dollars, gold is down 14%. It should be noted, however, that the decline in gold in euros is less significant (-4.5% since the beginning of the year).
Gold is suffering directly from the rise in real rates in the United States (nominal rates minus inflation), which had fallen to a historically low level, below -1%, at the end of last summer.
Against the backdrop of an improving economic outlook as support plans and vaccination unfold, 10-year rates in the US have risen from 0.9% at the end of 2020 to 1.6% today. At the same time, inflationary pressures remained contained across the Atlantic earlier this year.
“The more positive the real yield offered by US federal government bonds, the more it covers the need for risk-free investment and makes gold investments less attractive,” reminds economist Véronique Riches-Flores.
(Chart Source: Tradingview 05.05.2021)
As an anti-crisis asset par excellence, gold is suffering from the renewed appetite of investors for risk, which is reflected in the current record highs in the equity markets. The yellow metal is also suffering from the competition of metals.
Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.
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