Where we are: Gold is currently trading around $4,520, consolidating gains after a choppy overnight session. Bullion found support near $4,490, holding above the prior NY close of $4,515, and is testing resistance near the $4,530 level as Europe unwinds.
What’s driving it: The primary driver for gold remains the continued slide in US real yields. The 10-year TIPS yield has fallen another 5 basis points to 2.13%, providing a significant tailwind for bullion. While oil-driven inflation fears might ordinarily bolster rate-hike bets and weigh on gold, breakeven inflation also fell 5bp yesterday, leaving the real rate the dominant driver today. The modestly long speculative positioning in gold, though not at an extreme, offers some room for further upside should real yields continue their descent.
- US 10Y Real Yields falling 5bp provides a strong incentive to bid gold.
- Falling Breakeven Inflation neuters the oil-inflation fear rate-hike narrative.
- Net non-commercial positioning is only at the 29th percentile suggesting more room to build long positions.
NY session focus: The 10:00 ET release of the Revised UoM Consumer Sentiment data will be the key event to watch in the NY session. A significantly weaker-than-expected print could further pressure real yields and send gold toward the $4,600 level. Conversely, a strong reading could trigger a retracement back towards $4,500. The trade to watch is the ongoing real-yield sensitivity. The pain trade here is a sudden reversal in oil prices, reigniting inflation fears and triggering a sharp rise in nominal yields, leaving gold exposed.