Gold, XAU/USD, Treasury Yields, TIPS, Real Yields, BRIC, Gold Hoarding – Talking Points

• The gold price is struggling to break the range as hurdles are ignored for now
• More important than elevated Treasury yields, real yields have been strengthening
• BRIC nations might be eyeing gold for alternative purposes. Will it drive XAU/USD north?

The gold price continues to oscillate around US$ 1,940 going into Tuesday’s trading session as market headwinds might be offset by geopolitical factors that have seen volatility in the precious metal slide lower.

US real yields have been on the march higher for the better part of 2023 and recently stretched to a 14-year peak at the 10-year part of the curve, trading above 1.90%.

The real yield is the nominal yield less the market-priced inflation rate derived from Treasury inflation-protected securities (TIPS) for the same tenor.

The last time that real yields were this high was 2009, when spot gold was below US$ 1,000. More recently in 2018, when the real yield was near 1.0%, spot gold was under US$ 1,300 an ounce.

SPOT GOLD AGAINST US 10-YEAR REAL YIELD – THE BIGGER PICTURE

Chart created in TradingView

Of course, there has been a lot of water under the bridge since then and the currents of demand have been tilted as the BRIC (Brazil, Russia, India and China) nations seek an alternative to the US Dollar as a reserve currency.

Much has recently been made of the potential for a gold-backed currency to allow these nations to bypass the US Dollar in international trade.

Such a system has proven to be a failure in the past for a multitude of reasons that are beyond the scope of this article. Refer to the Bretton Woods gold exchange for reference.

On a recent trip to Western Australia, one the largest physical gold-producing regions globally, a number of contacts highlighted that almost every ounce of the yellow metal currently being dug out of the ground was being put on a ship to China.

Such anecdotes of other BRIC members taking similar actions have been reported elsewhere. Keeping in mind that Australia, China and Russia are also the top producers of gold, it might be the case that gold hoarding has been a feature of the price action of late.

Looking ahead, a break of the recent range of US$ 1,885 – 1,900 could be the catalyst for the next notable move for XAU/USD. Click on the banner below to learn more about range trading.

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter