Gold price set to weaken
February 12, 2018

The gold price is set to weaken as its inverse correlation with real US bond yields is set to resume after collapsing so far this year, NN Investment Partners says.

NN IP says that its analysis1 shows that over the long term, gold is inversely correlated to long-term US real yields, with a correlation of -0.82 in the last decade. This year, however, this correlation has collapsed and even reversed to a positive +0.57. US ten-year real yields rose from 44 basis points to 70bps in early February and yet gold prices rose.

Koen Straetmans, Senior Strategist Multi-Asset, NN IP, commented: "One explanation of the current disconnect could be the rise in inflation expectations, to which gold is a perceived hedge. However, this is a very long-term phenomenon. Gold is only an appropriate hedge against inflation over very long periods. It protects against inflation surprises, of which little is seen currently.

"Furthermore, gold prices have been supported by the depreciation of the US dollar. This currency support may start to fade. Speculative positioning in gold is high currently and at risk of reversal."

NN IP notes that ETF (exchange-traded fund) investments in gold were weak last year at some 170 tons, versus over 520 tons in 2016. Also, gold retail investment has declined by 1.2 percent year-on-year in 2017 and gold jewellery consumption was also weak in Q4 2017, falling 3.4 percent year-on-year.

1 Source: NN IP/Thomson Reuters Datastream





This site, like many others, uses small files called cookies to customize your experience. Cookies appear to be blocked on this browser. Please consider allowing cookies so that you can enjoy more content across globalcustody.net.

How do I enable cookies in my browser?

Internet Explorer
1. Click the Tools button (or press ALT and T on the keyboard), and then click Internet Options.
2. Click the Privacy tab
3. Move the slider away from 'Block all cookies' to a setting you're comfortable with.

Firefox
1. At the top of the Firefox window, click on the Tools menu and select Options...
2. Select the Privacy panel.
3. Set Firefox will: to Use custom settings for history.
4. Make sure Accept cookies from sites is selected.

Safari Browser
1. Click Safari icon in Menu Bar
2. Click Preferences (gear icon)
3. Click Security icon
4. Accept cookies: select Radio button "only from sites I visit"

Chrome
1. Click the menu icon to the right of the address bar (looks like 3 lines)
2. Click Settings
3. Click the "Show advanced settings" tab at the bottom
4. Click the "Content settings..." button in the Privacy section
5. At the top under Cookies make sure it is set to "Allow local data to be set (recommended)"

Opera
1. Click the red O button in the upper left hand corner
2. Select Settings -> Preferences
3. Select the Advanced Tab
4. Select Cookies in the list on the left side
5. Set it to "Accept cookies" or "Accept cookies only from the sites I visit"
6. Click OK

The gold price is set to weaken as its inverse correlation with real US bond yields is set to resume after collapsing so far this year, NN Investment Partners says.

NN IP says that its analysis1 shows that over the long term, gold is inversely correlated to long-term US real yields, with a correlation of -0.82 in the last decade. This year, however, this correlation has collapsed and even reversed to a positive +0.57. US ten-year real yields rose from 44 basis points to 70bps in early February and yet gold prices rose.

Koen Straetmans, Senior Strategist Multi-Asset, NN IP, commented: "One explanation of the current disconnect could be the rise in inflation expectations, to which gold is a perceived hedge. However, this is a very long-term phenomenon. Gold is only an appropriate hedge against inflation over very long periods. It protects against inflation surprises, of which little is seen currently.

"Furthermore, gold prices have been supported by the depreciation of the US dollar. This currency support may start to fade. Speculative positioning in gold is high currently and at risk of reversal."

NN IP notes that ETF (exchange-traded fund) investments in gold were weak last year at some 170 tons, versus over 520 tons in 2016. Also, gold retail investment has declined by 1.2 percent year-on-year in 2017 and gold jewellery consumption was also weak in Q4 2017, falling 3.4 percent year-on-year.

1 Source: NN IP/Thomson Reuters Datastream



Free subscription - selected news and optional newsletter
Premium subscription
  • All latest news
  • Latest special reports
  • Your choice of newsletter timing and topics
Full-access magazine subscription
  • 7-year archive of news
  • All past special reports
  • Newsletter with your choice of timing and topics
  • Access to more content across the site