Gold Fundamentals Not Yet Bullish

Gold and gold stocks have remained below their 2016 peaks even in the face of a very weak US dollar because the fundamentals are not there. Real rates have been stable in 2017 while the yield curve has been flattening. Until things change, gold and gold stocks have little chance to break out.

Gold performs best when real rates are declining and especially when real rates decline while in negative territory. Real rates declined sharply into and during 2016 but have been rising or stable this year.

The current problem for gold is nominal yields have trended higher and faster than the rate of inflation.

Gold and gold stocks are going to continue to struggle until the fundamentals align bullishly. Market action will of course lead fundamental changes but knowing the drivers to look for can help us anticipate the fundamental changes in advance.

We think rising inflation is more likely than falling short-term rates to be the driver for gold in 2018. In that case, we would anticipate hard assets to perform better, long-term rates to rise faster than short-term rates and inflation to outpace short-term rates.

Sourse: Bloomberg Pro Terminal
Trader-G.Bozhidarov

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