The higher the cabinet, the louder it falls. Gold, which has soared to unprecedented heights, fell like a stone against the backdrop of rising US Treasury bond yields and the strengthening of the US dollar. Stocks of the largest specialized fund SPDR Gold Shares marked the worst decline since March, and TD Securities' warning that overblown speculative longs for the precious metal could trigger a serious sell-off if something goes wrong with the bulls' plan came to life. However, not only the company was right, but I was also right. Described in the previous article, the strategy of selling gold on the breakout of support for $2000-2010 with targets for $1970 and $1935 per ounce played out 100%.
The Fed's aggressive response to the pandemic-induced recession led to a sharp decline in US Treasury bond yields and the associated loss of the dollar's investment attractiveness. Rising inflation expectations and falling real rates of the US debt market below zero allowed the precious metal to update record highs. At the same time, the nominal yield of 10-year securities has long been held near the 0.6% mark. The market did not particularly believe that the Fed would continue the cycle of monetary expansion. To do this, it was necessary to get news about the deterioration of the health of the US economy. It turned out the opposite. The strong employment statistics were a pleasant surprise. Few people expected that the drained COVID-19 economy could generate new jobs in such numbers.
Dynamics of rates of the US debt market and gold
Perhaps the bears overdid it by selling the US dollar. In July, the USD index sank 4.4%, its worst monthly performance in almost a decade, but its trade-weighted real rate weakened by a modest 0.9%. This means that the US currency has not lost its purchasing power and is still attractive to foreign investors. Goldman Sachs' talk about the dollar losing its status as the main reserve currency is most likely unfounded.
Dynamics of the nominal and real exchange rates of the US dollar
The seasonal factor also plays into the hands of the "American": during the last five months of the year, it was more often closed in the green zone than in the red. The USD index performed particularly well in the run-up to the US presidential election. This suggests that the chances of Donald Trump's re-election are not as low as is commonly believed, because it has long been noted that what is good for the dollar is good for the current owner of the White House.
As for the rise in Treasury bond yields, the reasons should be found in the improvement in global risk appetite. Strong macro statistics across the United States, a decrease in the number of people infected with coronavirus, and Russia's intention to use the COVID-19 vaccine, significantly lift the mood of fans of profitable assets.
Technically, the rebound of gold from the important support at $1905, where a significant pivot level is located, is a good sign for the "bulls", but the inability of the precious metal's quotes to gain a foothold above $1945 and $1970 per ounce may become the basis for sales.
Gold, the daily chart