Low real interest rates are here to stay, supporting XAU/USD – ANZ

US 10y yield is holding above 1% while XAU/USD is trading around $1,850/oz. The rising US 10y yield and the outperformance of risky assets have weighed on the safe haven appeal of gold. Recent strength in the USD has created headwinds for the precious metals market. However, rising inflation expectations should provide some support in the medium-term, strategists at ANZ Bank appraise.

Key quotes

“The rising US 10y yield and the risk-on tone of the market have been subduing investor interest in gold for the past few months. Talks around tapering of asset purchases by the central banks have also dented market sentiment.”

“We believe gold remains a relevant risk-diversifier amid rising inflation expectations and expensive equity market valuation. The rise in real interest rates looks constrained this year, as the Fed has signalled that its accommodative stance will continue. This should keep the backdrop benign for gold prices.”

“A sustained outperformance of silver over gold is unlikely to continue after the recent silver price rally. We see the upside contained at $30/oz.”