Gold is on a tremendous rally. The precious metal rose above $2,700 an ounce for the first time on Friday, bringing its weekly gain to nearly 2%. That’s more than four times the S&P 500’s 0.5% advance this week, and gold’s fifth weekly advance in six weeks. Gold recently regained momentum after the Federal Reserve kicked off its easing cycle with a half-percentage point rate cut last month. However, the recent rally comes despite a rebound in Treasury yields and the US dollar, which is expected to take the wind out of gold’s sails. A high yield usually makes gold attractive because the metal offers almost no yield. A strong dollar hurts commodities because buyers outside the U.S. pay more to buy them. @GC.1 3M Mountain Gold 3-mo Chart “There are worrisome signs we’re trying to understand,” wrote Andrew Brenner of NatAlliance Securities. “[W]Gold hits record highs when dollar is strong?” Tim Hayes, chief global investment strategist at Ned Davis Research, pointed to several factors that could be driving the precious metal. The reaction in the gold market says “investors are skeptical that rate hikes will continue,” Hayes wrote. , refers to global total bond yields. The 10-year Treasury yield rose to 4.08% from around 3.7% in the past month. The dollar index, which tracks the U.S. currency’s performance against the euro, Japanese yen and others, has risen nearly 3% in the past month, with Hayes pointing to the pace of expectations for lower yields next year as hostile to gold, as the spread between U.S. 10-year and three-month Treasury yields is in its ‘flat or inverted’ mode. “It’s not out yet, with gold rising 23% a year over the past 20 years, outperforming other asset classes,” he added. In fact, traders expect the Fed to cut rates further. CME Group’s FedWatch tool based on trading in Fed Fund futures for November This represents an 88% probability of a quarter-point rate cut during the month, compared to a 75.6% chance in December.
