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What is behind gold's resilience in the face of soaring bond yields?
United States 2-Year yields hit a fresh 16-year high, while 10-year yields are on course to recapture their 16-year highs attained in October. The chart below shows gold posting three consecutive daily gains and bond yields.
The last time this happened was in April of last year. The flood of solid US data (NFP, unemployment rate, and retail sales) has reduced expectations of a hard landing, but not entirely made a 50-bp hike a certain outcome from the Fed later this month. Most recent Fed speeches stuck to the message of a 5.50-5.75% Fed Funds rate, but the possibility of a 50-bp hike remains only around 30%.
Can things change? Sure, next week's NFP/AHE/Unemp report will provide crucial signals on the state of labor markets and wages/earnings growth, while the April CPI (March 14) should help seal the fate of this month's Fed hike.
Fundamentals may indicate that higher yields are not a necessary danger to metals as long as they're backed by steady inflation and soft or no landing. So what are the technicals telling us?
1) Gold/Silver ratio (Mint Ratio) remains capped below 90—coinciding with the 61.8% retracement of the decline from the Sep high to the Dec low.
2) Silver remains comfortably above its rising trendline support –usually an essential condition to metals' optimism –as was seen during Gold's nervous days of Oct 17-30 (see Real Vision interview again)
3) Once you have correctly concluded the positive correlation between the US dollar index and Mint Ratio, you can consider the following:
- The September 1st high of 96.55 on the Mint Ratio occurred 27 days before that DXY high of 114.8.
- The 96.55 high also happened to be the 50% retracement of the greater down move (in the Mint Ratio) from March 2020 high to February 2021 low.
Could the latest retracement/resistance on the Mint Ratio continue to hold? It is one thing to navigate the FOMC implications for periodic economic data. But it's also useful to heed key technical levels across the Intermarket space.
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