uploads///Gold price versus US Ten year Treasury yield

According to HSBC, What’s a Strong Clue for Gold’s Direction?


May. 24 2016, Updated 11:30 a.m. ET

HSBC on gold

As mentioned in the previous article, the overall financial markets of the world (IXG) remain vulnerable. Commodities and precious metals also remain vulnerable, as they likely take a significant amount of their movements from the overall market sentiment.

Major banks and their opinions on the directional movements of precious metals give insight to market participants.

Analysts at HSBC (HSBC) said that as they tracked the previous Federal Reserve rate hike cycle, they determined that gold has risen for at least 100 trading days after the first hike by the Federal Open Market Committee (or FOMC). This time, the rally could last longer.

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James Steel, a famous analyst at HSBC, has closely linked the hike rate phenomenon by the FOMC to fluctuations in gold. Steel has pointed out that the lowering of interest rate hike expectations from four to two in 2016 has kept precious metals buoyed. The weakening of the US dollar has also given strength to the greenback-denominated assets.

An extended rally?

Another support for gold according to Steel is the negative interest rates adopted by many central banks across the world. The negative rates imply economic weakness, which is helpful for gold.

Even though gold has surged almost 20% after falling ~10% in 2015, Steel argues that unlike in the past, this time, the rally could be extended. Steel’s top-end forecast for gold is $1,300 per ounce in 2016.

The fluctuations in gold’s price also significantly impact the price changes in many gold- and precious metals–based funds. Funds that have seen significant rises in 2016 due to gains in gold include the PowerShares DB ETF (DGL) and the Physical Swiss Gold Shares ETF (SGOL). These two funds have seen rises of 18.2% and 17.9%, respectively, year-to-date.


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