Gold is very sensitive to US Treasury yields | 06 October 2023

#SP500:

Surging bond yields are rattling U.S. stocks, and some investors worry the richly valued shares of giant technology and growth companies may be another weak spot. Investors see many of the stocks as major beneficiaries of advances in artificial intelligence. Earlier this year, megacaps' strong balance sheets and business models also attracted those looking for a safe haven when regional banking turmoil shook the financial system. Higher yields on Treasuries - which are sensitive to rate expectations and seen as risk free - offer more investment competition to stocks while raising the cost of borrowing for corporations and households. The yield on the U.S. benchmark 10-year Treasury stands near its highest level in around 16 years on worries that the Federal Reserve will leave rates around current levels longer than previously expected.

Trading recommendation: sell 4360 and take profit 4266.

XAUUSD:

If last year gold was strongly supported by geopolitics and high inflation in the global economy, both of these factors are now fading. Investors around the world have become accustomed to the situation in Ukraine and geopolitical tensions no longer cause such a strong reaction. The Taiwan situation has also fallen off the radar as neither the US nor China want an escalation. As for inflation, it has already peaked in almost all the world's major economies and is trending down, with China's inflation even hovering around zero. In the absence of geopolitical and inflationary risks, the gold price typically reacts strongly to changes in the real yield on 10-year US Treasuries. The yield on long-term US inflation-indexed government bonds is currently 2% per annum, close to a 16-year high. During such periods, the price of gold tends to fall as mutual funds and banks find it more attractive to allocate cash to risk-free assets with returns above inflation, while jewellers and other market participants are reluctant to increase their gold holdings in anticipation of a potential fall in the value of the precious metal.

Trading recommendation: sell 1860 and take profit 1830.

#WTI:

In the middle of the summer, the OPEC+ countries created an artificial supply deficit in the global hydrocarbon market, leading to an increase in prices for all types of oil. Low-sulphur grades, which are particularly attractive to oil refiners, experienced increased demand. Why did the OPEC+ countries decide to create an artificial supply deficit this year? The initiative for this decision came from Saudi Arabia, as one of the leaders of this alliance. In August 2022, Saudi Arabia was producing just over 11 million barrels per day, but in August this year this figure fell to 8.9 million barrels per day. This level of production will continue until the end of the year, as the kingdom's energy ministry has already approved quotas for the coming months. Riyadh is seeking a rise in oil prices, as the average cost of oil in the first half of the year was $80 per barrel, which does not allow for a balanced government budget.

Trading recommendation: buy 87.35 and take profit 91.00.