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Is the gold ready to rip even higher? Four key charts to watch

(Bloomberg) – Just as vaccine rollout and economic optimism left gold resembling last year’s metal, it staged a recovery. Bullion is one of the best performing commodities this month, wiping out almost all losses this year. Investors have been drawn to the lure of gold as a hedge against inflation, as the Federal Reserve maintains its monetary stimulus and says the price pressures should prove to be temporary. Spot gold rose 0.4% on Friday, capping a fourth consecutive weekly gain. Diego Parrilla, who heads the Quadriga Igneo fund, is among those who have recently increased their exposure to gold, saying central banks will not take the risk of raising interest rates to fight inflation. for fear of “stinging the huge bubbles” they created. “We have entered a new paradigm that will be dominated by deeply negative real interest rates, high inflation and low nominal rates – an extremely favorable environment for gold,” said Parrilla, who manages $ 350 million. . Yet gold is ultimately a safe haven asset that, by conventional logic, should suffer as the economy booms. So, can the last rally be supported? Here are four key charts to watch out for. The Inflation Conundrum This is the hottest question in finance this year, and arguably the most important for gold: Will current inflationary pressures be transient or persistent? If you ask the Fed, the answer is number one. Parts of the bond market disagree, with market-based measures of long-term inflation expectations reaching their highest level since 2013 earlier this month. This is a sweet spot for gold, which benefits when monetary policy keeps bond rates low even if inflation persists. Real yields on Treasuries have recently turned more negative, which has fueled the appeal of bullion. Their next evolution will be crucial. Any hint that the Fed might drop due to inflation or a strong labor market could push bond rates up – triggering a repeat of the taper tantrum seen in the aftermath of the financial crisis, when gold fell by 26% within six months. position where I think you are coming is a place where it becomes very vulnerable to the narrative of the reduction, ”said Marcus Garvey, head of metals strategy at Macquarie Group Ltd., on the other hand, anything slowing the recovery global economy – whether it’s poor job data or new virus variants, real yields are expected to plummet, benefiting the metal. Driver of the dollar The dollar has been another important driver of gold this year. After initially gaining momentum as the U.S. vaccination schedule overtook the rest of the world, it has declined since March, as other countries have closed the gap, providing tailwind for the precious metal. Most analysts don’t see much movement in the dollar going forward, with the median forecast compiled by Bloomberg only suggesting a slight strengthening. If they are wrong, whether due to a divergence in the global recovery or surprising hawkishness from central banks in other countries, the implications for bullion could be significant. The year came as exchange-traded funds reduced their holdings of the metal by 237 tonnes in the four months to April. Hedge funds traded on the Comex also reduced their exposure to the lowest since 2019 in early March. In the second quarter, the flows started to reverse. If this accelerates, gold could find another leg higher. “There is still potentially a lot of pent-up investment demand,” said Ole Hansen, head of commodities strategy at Saxo Bank A / S. “Yet the positions are relatively small. Others, including Robert Jan Van Der Mark of Aegon NV, which reduced its exposure to gold in November after the vaccine announcement, remain to be convinced. “With the vaccination rollout on track and economies reopening, we have less appetite for some kind of safe haven / stagflation asset in the wallet,” he said. Bitcoin Bounce Often touted as a digital bullion , Bitcoin’s rally in the first few months of the year was demoralizing for the gold bulls. Both assets are both favored by those who fear hyperinflation and currency depreciation, so the cryptocurrency’s outperformance may have turned the heads of potential bullion buyers. Bitcoin has fallen about 40% from its mid-April high, with substantial cash outflows. Gold could be a beneficiary. (An earlier version of this story corrected the central bank’s spelling in the second paragraph.) More stories like this are available at Subscribe now to stay ahead with the source of business news the most reliable. © 2021 Bloomberg LP

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