Seeking Alpha

Gold: Get Ready For A Downward Correction

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Includes: AAAU, BAR, DGL, DGLD, DGP, DGZ, DZZ, GLD, GLDI, GLDM, GLDW, GLL, IAU, IAUF, OUNZ, PHYS, QGLDX, SGOL, UBG, UGL, UGLD
by: Oleh Kombaiev
Summary

The language in the latest Fed statement points to a higher bar for further easing.

The UST 10-year yield is likely to continue growing, which is a key pressure factor for the gold price.

The US inflation does not want to rise above 2%.

All this will have a positive impact on the US real rate and will put pressure on the gold price.

In October, the US interest rate was reduced for the third time in the current year. Notably, the language in the Fed statement points to a higher bar for further easing:

Source

It is also significant that judging by the futures, the market does not expect a change in the key rate level in the near future:

Source: CME Group

This event has already pushed the UST10 yield to almost a three-month high:

So, what does all this mean for the gold market? The most immediate...

Ultimately, the gold price is a mirror image of the US real rate. It is very easy to prove it by demonstrating the mutual long-term dynamics of gold and the US real rate by smoothing over the short-term volatility:

By the way, it should be noted that this indicator incorporates two indicators: the 10-year Treasury yield and the rate of inflation in the US.

So, what do we have now?

Now we have inflation in the US which does not want to rise above 2%:

And we have expectations that the Fed will not reduce the interest rate in the coming months:

All this, of course, will have a positive impact on the US real rate and will put pressure on the gold price.

In light of the above, I believe that the price of gold is prone to a downward correction at the level of $1400.

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.