Safe-Haven Fueled Bond Market Rally, Gold’s Best Friend

Gold futures are inching lower early Friday, but remain in a position to post a second consecutive weekly gain. Investors turned to safe-haven assets like Treasury bonds, driving down yields and making the precious metal a more attractive investment. Traders also remain cautious while awaiting signals on interest rate hikes from the U.S. Federal Reserve’s meeting next week.

At 04:20 GMT, February Comex gold futures are trading $1843.30, down $1.60 or -0.09%. On Thursday, the SPDR Gold Shares ETF (GLD) settled at $171.66, down $0.42 or -0.24%.

Gold is up about 1.2% so far this week and is en route to its second weekly gain in three this month – a positive start for bullion in a year that is expected to be difficult because of expectations of at least four interest rate hikes by the Fed.

Meanwhile, all eyes have shifted to the U.S. central bank’s Federal Open Market Committee (FOMC) scheduled meet on January 25-26 for any updates on the Fed’s existing plans for rate hikes against the backdrop of surging inflation.

Some traders are also monitoring the geopolitical tensions surrounding Ukraine after U.S. Secretary of State Antony Blinken and President Joe Biden said on Wednesday Russia could launch a new attack on Ukraine at very short notice but Washington would pursue diplomacy as long as it could.

When in Doubt Turn to Treasury Yields for Guidance

A slide in the U.S. Dollar tends to make bullion cheaper for buyers holding other currencies, but not always, especially when the direction of the greenback is driven by safe-haven buying and selling. Then it’s a source of volatility.

But gold has its highest correlation with Treasury yields. This is why, if you’re going to invest in gold then you’re going to have pay close attention to the movement in yields.

In my opinion, gold isn’t a safe-haven asset per se like Treasury yields or the Japanese Yen. When investors seek safety they buy Treasury bonds. When Treasurys move higher, yields fall and when yields go down, gold tends to become a more attractive asset.

Stock Market Turmoil and a Russian Invasion …

Answer:  Name two reasons why investors are moving money into Treasurys. If these moves continue to play out, pushing real yields lower then gold is likely to remain underpinned.

The more aggressive investors are in running to the safety of the Treasury market, the greater the chance gold has of reaching $1882.50 to $1900.00.