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James Hyerczyk

If you want to know why gold has been under pressure lately, then look no further than the September U.S. 10-year Treasury Note chart. Traders have been selling the 10-year, essentially driving up yields, and making non-yielding gold a less-desirable asset.

You can talk until you’re blue in the face about gold being bullish because of the huge amounts of fiscal and monetary stimulus out there, but that’s more of a long-term indicator. Over the short-run, gold is weak because it is an investment that doesn’t pay you to hold it. At this time, investors want to get paid for risk and the stock market and higher-yielding commodity-linked currencies are paying them a lot more than zero-paying gold.

At 10:33 GMT, August Comex gold is trading $1708.30, down $19.10 or -1.11%.

Furthermore, the same factors – growing number of Covid-19 cases, plunging stock price and interest rates – that pushed gold higher are now driving prices lower as investors become more confident in a global economic recovery and better preparation for the widely expected second coronavirus wave.

Over the short-run, gold is likely to remain under pressure as long as there is increasing demand for risk and decreasing demand for safe-haven assets like gold, Treasurys and the U.S. Dollar.

You’ll know when the safe-have asset selling is over because gold will start reacting to the movement in the U.S. Dollar again.

The best thing for short-term gold traders to do at this time is to wait for a pullback into a value area like $1621.90 to $1582.40. If prices reach this area then we’re likely to see the return of the longer-term investor and this could help put in a short-term bottom.

Wait for Negative Rates to Hit New Zealand

Investors should also be patient because the Reserve Bank of New Zealand (RBNZ) is expected to introduce negative rates and this more could bring in fresh buyers.

The RBNZ seems set to take them negative, to lower borrowing costs for banks and businesses and stimulate an economy reeling from the coronavirus.

Frank Jasper, who manages for New Zealand-based Fisher Funds, is now looking to rebalance his portfolio as kiwi-denominated assets lose their luster.

“For the first time in my life, gold could have a role to play in our portfolios,” he added.

Although traditionally an asset sought during times of crisis and downturns, the precious metal has risen 12% so far this year, even as riskier assets have rallied. But this year is very different from others, you have to throw out the previous playbook and think outside the box.

Gold is not bearish per se, but it’s not bullish at this time either. The recovery in the global equity markets have been a huge surprise, but gold has pretty much held its ground. Gold investors are just as confused by the demand for risk as the professional money manager.

It doesn’t make sense to chase gold higher at current levels while stocks are soaring, but a good buy in a value area could pay-off well once equity markets top out. Be patient and play for value rather than try to guess when the momentum will shift back to the upside. I don’t think at this time you can get hurt waiting for your price.

For a look at all of today’s economic events, check out our economic calendar.
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