Gold prices have been pulling back for most of the year since peaking last August, and Seeking Alpha analyst Katchum thinks it’s time for the correction to end, which may be followed by a two-year gold bull market.
The main reason for the decline in gold prices is the rise in the 10-year U.S. bond yield, which rose from 0.5 percent last year to 1.7 percent this year. The increase may not seem spectacular, but from a bond market perspective, it’s a huge move. Gold is being affected by rising real interest rates, and even though inflation is rising, rising bond yields are bad for gold.
Katchum believes that bond yields will rise at a slower pace as the economic recovery shows signs of slowing. 2021 April, the U.S. unemployment rate rose modestly.
In addition, inflation is at a record high. the PPI index rose 6.2% year-over-year in April, a record high. As the PPI rises, costs will be passed on to consumers and could lead to higher CPI.
The pain index is also rising as both inflation and unemployment are rising. This usually favors gold because the misery index is positively correlated with gold.
In addition, the U.S. government will issue fewer short-term bonds and inflation-protected bonds. This will limit future Treasury yields, which will benefit gold. 5-year inflation-protected bond yields are moving lower, giving some support to gold prices.
The Fed also emphasized in March 2021 that it would not raise interest rates until after 2023. The chart below shows the likelihood of a 0.5% rate hike in 2023.
Investment institutions have taken note of the change in monetary policy and have started buying gold through gold ETFs. The chart below shows that the net asset value of gold ETFs is rising, which indicates that institutional investors are starting to flock to gold trading.
In addition, there has been a change in gold demand in China and India. Data from the Shanghai Gold Exchange shows that China’s gold demand doubled year-over-year; Indian customs data shows that India’s gold imports also doubled.
Another sign that the gold market is tight is the premium for gold coins. the premium for APMEX gold’s Maple Leaf gold coin is now at an all-time high of 8%. This indicates that gold is bottoming out. In addition, the tightness in gold is also reflected in the rising gold lease rates.
So, how long will this gold bull market last?
Charles Nenner believes that according to his neural network model, the gold bull market is just beginning and will last about 2 years.
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