XAUUSD fell on Friday, but prices closed the week out with a gain just north of half a percent against softer Treasury yields and a lower US Dollar. A better-than-expected US retail sales figure for September forced Gold on Friday.
The Federal Reserve’s FOMC minutes and inflation data stoked worries over the economic recovery last week. The Treasury curve flattened across closely watched yield spreads last week. A smoothing of the curve occurs when spreads between long- and short-dated Treasury yields tighten. The spread between the two- and 10-year Treasury notes are often used as a barometer for the economy’s outlook. That measure hit the lowest since September 22 last week.
Increasing pessimism over the economic recovery caused the Treasury market repricing, with rising inflation standing as the primary risk. Elevated energy prices appear to be one of the largest inflationary drivers, with natural gas, coal, and crude oil prices all surging. Those rising energy prices threaten the Fed’s transitory inflation narrative.
Gold is believed by some investors as an inflation hedge, even though there is little evidence Gold serves to counter inflation as an asset-specific hedge. Instead, gold’s rise is being accompanied by the withdrawal in economic bets, which the yield curve reflects. A drop in Treasury yields strengthens the yellow metal’s appeal being a non-interest-bearing asset.
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