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XAU/USD's bullish potential limited amid higher real yields


20 October 2021

Gold (XAU/USD) is facing pressure from higher real yields, as the US Federal Reserve gets closer to tapering its asset purchases. Furthermore, strong risk appetite is weighing on safe-haven investment, though retail investment remains strong, strategists at ANZ Bank report. Higher real yields are capping gold’s upside. Downside risks to economic growth are increasing amid the ongoing power shortages, although risk appetite is holding up.

An appreciating US dollar is a headwind stirred up by the Fed’s tapering plans and the outlook for rates next year. An outperformance of US economic growth against other regions could lift the greenback.

ETF holdings of gold are declining. Even so, investors have added some long positions in recent weeks. Retail investment is showing encouraging signs, with US eagle gold coin sales rebounding by 32% YTD. Physical demand is recovering in China and India, with spot premium rebounding for both countries.”

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