Gold has come under renewed pressure again today as the bond market turns up the heat once more.
The precious metal is trading down 0.3% to $4,125 and remains some distance from the highs above $4,600 just a few weeks ago. The latest breakout in Treasury yields is continuing to make life rather difficult for gold. Now, that part of the story is relatively straightforward. Higher yields raise the opportunity cost of holding a non-yielding asset like gold, which helps explain much of the recent pullback.
While the price momentum is weak, investor positioning tells a slightly different story.
Looking at the chart below, gold prices have fallen sharply from their recent highs but holdings in the SPDR Gold Trust are still sitting close to their highest levels in months at around 34 million ounces.
That divergence is notable. If investors were becoming decisively more bearish on gold, you would normally expect at least some of that weakness to show up through ETF outflows as well. But so far, that hasn’t really been the case.
If anything, that reinforces the narrative that the pressure on gold appears to be coming more from the rates side of the equation. And this is where the broader “higher for longer” story in the bond market comes into play.
Bond yields do not necessarily need to keep surging for gold to remain under pressure. They simply need to stay elevated for longer, which can continue to weigh on the appeal of the precious metal.
That being said, just be wary that resilient ETF holdings do not mean that gold is about to rebound straight away. So long as Treasury yields keep pushing higher, that remains a difficult backdrop for buyers to go up against.
But what it does tell us, though, is that investors are not abandoning the broader gold trade just yet. And if yields eventually start to settle at some point in the future, that underlying resilience could provide gold with a firmer base from which to recover.
This article was written by Justin Low at investinglive.com.