Gold, Oil & Indices (Equity & Bond Indices)

A reporter asked me why both USD and Gold are moving in tandem. i gave him this answer:

Gold prices began peaking in November, around the same time as the upward momentum in bond yields started to gain. Yields rose on a combination of improved US economic data and fiscal concerns with the US Treasury after the mid-term elections forced Pres Obama to extend the Bush tax cuts. Once 10 year yields regained the 3.10-3.20% level in December, gold could no longer break above its $1430 high. Gold and the rest of precious metals faced further struggle as China raised interest rates in late December and signalling its intention tighten further. The more Chinese tightening ahead, the more markets worry that the worlds second biggest economy slows abruptly, in which case would impact demand for commodities.

As gold turned from a peaking process to pursuing a downward trajectory, USD began retreating due to improved news flow from the Eurozone (decent bond auctions from Spain and Portugal and ECB purchases of Eurozone bonds). With the market showing more confidence in the Eurozone, markets further unwound golds safe haven lustre. And so we reach point of USD and precious metals falling in tandem. Looking ahead, we expect USD to sustain some stability in the next 1-2 weeks, while gold and silver vulnerable to losing another 5-7%.


Ashraf