U.S. Treasury 10-year yield (inflation adjusted) vs Gold spot price (U.S.)
SOURCE: Scott Barlow/Bloomberg
Gold price also tends to move in the opposite direction of the U.S. dollar, but the U.S. trade weighted dollar (DXY) has declined along with the bullion price so we can rule that out as a cause for recent gold price weakness.
Comments from the Federal Reserve will be the key to gold performance from here if current patterns persist. Incoming Fed chairwoman Janet Yellen and Chicago Fed president Charles Evans have recently made dovish noises, suggesting that the taper option is off the table and that the central bank will remain heavily involved in bond markets.
Treasuries sold off as a result (yields rising) on fears that continued monetary intervention will eventually become inflationary. For now, however, breakevens suggest inflation fears are subdued. The combination of rising Treasury yields and stable inflation is increasing real Treasury yields, and driving the gold price lower. In short, gold will continue lower as long as U.S. bond yields climb.
As for Bitcoin, I still can’t figure out why anyone would bet hard-earned investment dollars on a monetary experiment. The alleged virtual currency jumped from $150 in October to briefly hit $900 and continues to look like a lesson in greater fool investing. It has, as far as I can tell, no connection to gold or any fiat currency that can be widely used as a medium of exchange. Bitcoin might be interesting, but its success or failure has nothing to do with the outlook for precious metals prices.