Real Rates Could Impose Further Pressure On Gold

Gold resisted higher real rates, strong dollar and fund outflows, but the precious metal is still vulnerable to further decline.

Gold is experiencing some buying interest around $1,650.00 despite bets for bigger rate hikes by the Fed. On Monday, the precious metal eased the majority of the gains despite mayhem in the US dollar index (DXY).

The DXY dropped to near the round-level cushion of 112.00 as the risk-on impulse gained significant traction. S&P500 advanced vertically and recovered Friday’s losses.

Gold tends to correlate well with US real rates, the dollar and ETF flows. However, gold prices remained quite elevated compared to the theoretical value yielded by most popular models.

If real rates continue to be high in the foreseeable future, gold could most probably be one of the assets that could come under pressure.

Gold has outperformed treasuries and TIPS so far this year, but may not be able to resist the high yield for much longer if there is no brake on the accelerating hawkish stance adopted by the US central bank.