StanChart Says Structural Factors are Supporting Gold as Fed Hikes Rates

Gold is becoming less sensitive to higher real interest rates, with Standard Chartered highlighting that longer-term structural factors are increasingly helping support the precious metal despite the current Federal Reserve stance. In a recent precious metals report, the company’s Head of Commodities Research Suki Cooper explained that gold had already recovered from the Federal Reserve’s rate increase last week. 

According to Cooper, investor attention is gradually moving beyond near-term policy toward various concerns, among them currency debasement, de-dollarization, and potential market intervention. 

While the precious metal is likely to remain volatile, continued purchases by central banks globally and other official-sector investors are providing a degree of downside protection. By Q4, the bank expects gold to average about $4,650 per ounce, compared with an average of roughly $4,350 in Q3. 

Cooper also highlighted a notable change in gold’s relationship with real yields, explaining that correlations between gold and 10-year and 30-year Treasury yields had moved close to neutral. 

She added that the relationship with shorter-term real yields had also weakened, with correlations for five-year and two-year real yields declining to -22% and -16%. This is quite a drop, especially when compared to last month’s respective figures of -38% and -30%. 

The shift comes despite a significant change in interest-rate expectations. When this year began, markets were anticipating two rate cuts by the Federal Reserve, with this particular precious metal trading near $4,500 per ounce. Gold remains close to that level even after the Fed moved to raise rates, with markets anticipating another increase before the end of the year. 

Investment demand has also strengthened. Gold-backed exchange-traded product holdings are on course to match last month’s inflows of 121 tons, the strongest monthly increase since last September. Demand has remained resilient even with 10-year Treasury yields moving above 5%, suggesting investors continue to view gold as a longer-term hedge. 

Speculative positioning has not appeared excessively stretched either. Net fund length declined by 11,800 contracts in the two weeks before the Federal Reserve’s meeting, while gross long positions fell by 14,000 contracts. 

Standard Chartered expects another Fed hike in December before rates remain unchanged through 2027. However, the bank cautioned that a stronger greenback could pose a greater short-term threat to gold than rising real yields, noting that much of the market had already anticipated the recent increase in rates of interest, which helped limit the duration of the subsequent profit-taking. 

Enterprises like New Pacific Metals Corp. (NYSE American: NEWP) (TSX: NUAG) will be tracking how the price of gold moves over the coming months relative to the price of silver since the latter is not only a precious metal but also an industrial one. 

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