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Things That Shimmer Don't Always Shine

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M&T Research Group


  • The USD is dropping and gold is not back at last year's highs.
  • Gold prices are affected by more than currency spot rates.
  • Recent moves in gold, 10-yr yields and USD.
  • How to play it.

The USD is dropping and gold is not back at last year’s highs.

The USD has been moving down for months now and gold and gold miners are not moving up, what gives? The last 8% drop in the USD pushed gold miners and gold spot prices up significantly. The USD has made the same move and comparatively prices have not moved as much as one would expect. The culprit, interest rates.

Gold prices are affected by more than currency spot rates.

Since gold trades as a quasi-currency, trading decisions are made on the perceived carry in relation to the USD. Currencies have a spot rate, or the real rate at which they are traded currently, as well as interest rates. As interest rates in a country increase, the spot price of the currency will tend to increase; these changes can be brought on by both central banking and market conditions.

Recent moves in gold, 10-yr yields and USD.

That said, during the last 8% drop in the USD, beginning at the end of 2015, interest rates on US Treasuries fell more than this last drop beginning at the end of 2016; the US 10-yr rates dropped approximately 43% and 20% respectively. This phenomenon muted the rise in gold prices because the shallower drop in rates shows that investors believe that rates will go up and the USD will bounce back, removing demand for gold investment products. Below are charts illustrating the differences in price movement:

You can plainly see that both gold and the 10-yr yield contracts experienced the same moves, the first being twice the amount the most recent, while the USD experienced the same size move both times. Now that you can see this in pictures, the conclusion that people are starting to have more confidence in total US recovery is

This article was written by

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M&T Research Group is a collaboration between Heidi Tait, a Stock Options, Futures, and Forex trader, and Daniel Michael, a Petroleum Engineer interested in oil & gas market mechanics and money flow. We focus on sharing actionable trades and plays in our areas of interest while collaboratively writing about key economic events and developments, commodities and E&P stocks and derivatives, and options plays.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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