Why gold may continue to rally — as long as U.S. stocks do

The tech-heavy Nasdaq keeps setting new records, and gold is on a roll, closing at its highest level since 2012. That is not the typical correlation, but then these aren’t typical times.

Chris Weston, head of research at Australian broker Pepperstone, says the same underlying reason is driving both — the U.S. bond market. It isn’t easy to see in the price action, and the 10-year yield barely budged on Tuesday. The movement is in real, or inflation-adjusted terms, as the yield on the Treasury Inflation-Protected Securities, or TIPS, heads into ever deeper negative territory.

Gold is viewed by the market as a zero-coupon bond, so when inflation-adjusted Treasury yields head lower, the relative attractiveness of gold increases, Weston points out. Over two years, 90% of the variance in gold can be explained by the inflation-adjusted U.S. Treasury, he says.

At the same time, speculative interest in gold is slightly below average, according to Commodity Futures Trading Commission positioning data. He does concede the cumulative money flow into gold exchange-traded funds is moving progressively higher.

The U.S. Trade Representative said it is considering tariffs on an additional $3.1 billion worth of goods from France, Germany, Spain, and the U.K. The potential tariffs relate to the long-simmering dispute between plane makers Boeing BA, -0.33% and Airbus AIR, -2.96%. The New York Times separately reported the U.S. is considering reimposing tariffs on Canadian aluminum.

The International Monetary Fund is due to release its world economic outlook at 9 a.m. Eastern.

Why gold may continue to rally — as long as U.S. stocks do, MarketWatch, Jun 24