Gold managed to bounce sharply off its lows during the ECB press conference, presumably because investors are now convinced that the the central bank will try to supress rising bond yields in troubled Eurozone countries, thus re-starting/continuing with some form of QE just as it has started to hike rates.
It remains to be seen whether the gains for gold will hold as we are in an environment of rising interest rates, which as we know has not been great for precious metals. But the bullish-looking candle on the daily chart of gold at around key $1700 support level cannot be ignored.
I was asked earlier about the metal's performance in foreign currencies and how that related to some form of inflation-hedging. Let me share those thoughts below, now that we are talking about gold:
While gold has been able to hold its own better in foreign currencies, its gains still look far from impressive.
Gold might be up more than 10% in yen terms, but the USD/JPY has rallied more than 20% year-to-date. This means that gold is actually 10% lower when you take into account the exchange rate depreciation. In other words, gold has actually been weaker in yen than dollar terms, given that XAU/USD was -8% YTD at the time of writing. Likewise, gold in euro (+2.8%) and pound (+4.3%) terms are much weaker than they appear, when you take into account the exchange rate.
In other words, investors outside of the US have preferred to hold the dollar over gold, which means it has been a poor hedge against inflation. It is all because of rising interest rates and bond yields.
But with bond yields falling post ECB, are we going to see a change in the trend for gold and silver - with both metals testing major levels?
I guess time will tell.
By Fawad Razaqzada on behalf of FOREX.com
It remains to be seen whether the gains for gold will hold as we are in an environment of rising interest rates, which as we know has not been great for precious metals. But the bullish-looking candle on the daily chart of gold at around key $1700 support level cannot be ignored.
I was asked earlier about the metal's performance in foreign currencies and how that related to some form of inflation-hedging. Let me share those thoughts below, now that we are talking about gold:
While gold has been able to hold its own better in foreign currencies, its gains still look far from impressive.
Gold might be up more than 10% in yen terms, but the USD/JPY has rallied more than 20% year-to-date. This means that gold is actually 10% lower when you take into account the exchange rate depreciation. In other words, gold has actually been weaker in yen than dollar terms, given that XAU/USD was -8% YTD at the time of writing. Likewise, gold in euro (+2.8%) and pound (+4.3%) terms are much weaker than they appear, when you take into account the exchange rate.
In other words, investors outside of the US have preferred to hold the dollar over gold, which means it has been a poor hedge against inflation. It is all because of rising interest rates and bond yields.
But with bond yields falling post ECB, are we going to see a change in the trend for gold and silver - with both metals testing major levels?
I guess time will tell.
By Fawad Razaqzada on behalf of FOREX.com
