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Home » Popular Markets » Commodities » Gold price vs US Treasury yields: how is this market changing?

Since our last article in mid-February, gold has unfolded in a textbook bullish fashion, $300 up followed by a correction of $150 back. The long-term bullish structure is very much alive and keeps unfolding as expected. The bullish setup for gold will continue to stay alive as long as $1.908 (1.900) stays intact on close.

The last month has carved out what looks to be a new and higher base before entering new highs around 2.300, from where 2.000 should become the new base. The ignition for this move came Friday with the close above 1.940.

Gold CFD chart
CFDs on Gold (USD/oz), 6 months to 12/04/2022, data by TradingView.com

All financial assets are a valuation of future earnings and/into current value, and the “lever” in the valuation is yields, most importantly the US 10-year Treasury yield, and that asset has been central to actions everywhere lately. Fed Governor Lael Brainard has lately been preparing the world for fast rising US short terms rates, which has influenced the price of all assets.

Recently this has driven US 10-year yields up towards 2.85%, which is our first long term target in US 10y yields. That level also represents the long-term falling trendline back from 1981 today (Tuesday). This area also coincides with just about zero percent in real yields on TIPS. This trendline and chart is probably the most important trendline and chart of 2022 in my view.

Rising yields combined with a rising USD and falling JPY are normally not good conditions for gold, which is why the recent strength for the metal is so much more impressive.

US Government Bonds 10yr yield chart
US Government Bonds, 10 yr yield, 18 years to 2022, data by TradingView.com

How to play this?

Either invest directly in gold with an entrance around 1.910-26 and a stop on a close below 1.900, which is the major pivot currently. Alternatively, invest via gold stocks and get a higher torque. With gold stocks the most secure are the major produces like Newmont, or an ETF like GDX, in which Newmont has the largest part anyway. Sadly, the junior and developing gold stocks have not yet reflected the last year strength in gold, but since this bull run looks to be longer-term with a potential base at 2.000 going forward, there is still both room and time for them to catch up.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Henrik Mikkelsen

Henrik Mikkelsen

Henrik Mikkelsen is an Investment Advisor and Strategist with Iridis AG, a wealth and investment development company in Zug, Switzerland.

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