Gold has been on a blistering rally. The precious metal soared above $2,700 an ounce for the first time on Friday, bringing its weekly gain to nearly 2%. That’s roughly four times the S & P 500’s 0.5% advance this week, and is also gold’s fifth weekly advance in six weeks. Gold recently regained momentum after the Federal Reserve began its easing cycle with a half-percentage point rate cut last month. However, the latest upturn comes despite rebounds in Treasury yields and the U.S. dollar too, which might be expected to take the wind from gold’s sails. Higher yields typically make gold less attractive, as the metal doesn’t offer any yield. A strong dollar also tends to hurt the commodity, as it makes it more expensive for buyers outside the U.S. to buy. @GC.1 3M mountain Gold 3-mo chart “There are worrisome signs that we are trying to decipher,” wrote Andrew Brenner of NatAlliance Securities. “[W]hy is gold setting a record high when the dollar has been strong?” Tim Hayes, chief global investment strategist at Ned Davis Research, pointed to several factors that may be driving the precious metal. The reaction in the goild market suggests “that investors are skeptical that the rate rise will continue,” Hayes wrote, referring to the global aggregate bond yield. The 10-year Treasury yield has soared to 4.08% from around 3.7% over the past month. The dollar index, which tracks the U.S. currency’s performance against the euro, Japanese yen and others, is up nearly 3% over the past month. That said, Hayes noted the expected momentum for the benchmark yield is to the downside over the next year. “Also suggesting that bond yield trends have not turned hostile for gold, the spread between the U.S. 10-year and three-month Treasury yields has yet to move out of its ‘flat or inverted’ mode in which gold has risen at 23% per annum pace over the past 20 years, outperforming other asset classes,” he added. Indeed, this all comes as traders expect the Fed to lower rates further. The CME Group’s FedWatch tool based on trading in fed fund futures indicates an 88% probability of a quarter-point rate cut in November. For December, it shows a 75.6% chance.
