Investing.com has made its way to record highs on a diet of geopolitical tensions, a weaker dollar and sluggish real yields, but with interest rate cut expectations taking a major hit, the yellow metal’s price could soon be on borrowed time lie.
“We would not add a gold position at current prices and view it as vulnerable over a six- to 12-month horizon as futures markets continue to weaken expectations of Fed rate cuts and bond yields have more upside potential.” Strategists at MRB Partners said this in a Friday note.
Gold prices have been experiencing a perfect macroeconomic storm that began in October last year and accelerated in mid-February against a backdrop of largely flat real US interest rates and a stable US dollar, the strategists added.
But in recent weeks, the dollar and bond yield levels, especially real yields, gold’s two dominant cyclical drivers, have continued to rise, paving the way for a much bumpier path higher for the yellow metal.
The rise in yields followed a slew of hawkish comments from Federal Reserve officials, including Chairman Jerome Powell, who indicated earlier this week that recent upside surprises to inflation have boosted the Fed’s confidence to begin cutting rates affected.
Traders now see the Fed’s first rate cut in September rather than June, with just two rate cuts priced in for this year, down from the six or seven previously estimated cuts, and fewer than the three rate cuts for 2024 that the Fed had in March predicted. meeting.
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However, gold has risen in value despite this backdrop of higher rates and a stronger dollar, but that is still the case
“now quite overbought,” the strategists warned. The resilience of the precious metal could probably be that can be explained by the continued momentum and by an increase in demand for safe haven assets following an increase in geopolitical tensions.
Gold’s strength appears to “reflect momentum rather than any specific driver of performance,” according to MRB Partners.
But major cracks in gold’s armor may not emerge until the central bank removes the excess liquidity sloshing around the markets.
“We believe gold will continue to receive support as long as easy money is provided by central banks,” the strategists added.
