RISING BOND YIELDS ARE WEIGHING ON GOLD

GOLD SPDR CONTINUES TO WEAKEN...With all the talk about rising inflation and rising commodity prices, it may seem strange to see the gold market still in a downtrend.  But it is.  The daily bars in Chart 1 shows the Gold SPDR (GLD) falling to the lowest level since last June.  In addition, GLD remains well below its moving average lines; and the 50-day average has fallen below its 200-day line.   The makes gold the weakest of the major commodity markets.  Most of the commodity buying has come from agricultural markets, energy, industrial metals, and lumber which is where inflationary pressures are starting to build.  So what's holding gold back.   The Dollar Index has rebounded lately, but has also been in a general downtrend since last summer.   Some have suggested that Bitcoin has become the new gold.   That may be so.   But one likely reason for gold's current weakness is probably the rapid rise in bond yields.

RISING BOND YIELDS WEIGH ON GOLD...Chart 2 compares the price of gold (brown line) to the 10-Year Treasury yield (green bars) over the last year.   It seems clear that the two lines have been trending in opposite directions.  In fact, the upturn in the TNX in early August coincides with a peak in the price of gold (see arrows).  And each upturn in the TNX since then has been accompanied by a drop in gold.   The most recent of example of that can been seen at the start of the new year when the 10-Year yield jumped and gold tumbled.   The 60-day Correlation Coefficient between the two markets in the lower box has been negative throughout the past year and currently sits at -.79.   There's a good reason for that.   Gold is a non-yielding asset which does better when bond yields are falling.   As a result, it does worse when bond yields are rising.  Which they've been doing.  Further evidence of their negative correlation is shown below.

A LONGER-TERM LOOK... The weekly bars in Chart 3 compare the two markets over the past four years; and show them trending in opposite directions throughout that period.  A major peak in the 10-Year Treasury yield during the fourth quarter of 2018 conicided with a major bottom in gold (see arrows); and they trended in opposite directions throughout 2019 and 2020.  The peak in gold last summer coincided with an upturn in yields (as shown in Chart 2).   There may be other reasons why the price of gold has been so weak in the face of rising commodity prices.   But the rise in yields is clearly one of the reasons why investors have stayed away from gold.