‘Buy on the dip’ has been an oft repeated mantra over the last 12 months as gold storms to record highs and is consistently earmarked for record performance increases by the world’s leading financial institutions. If you have been waiting for a dip in order to invest, now is the time to act – and it’s thanks to rising U.S. bond yields, meaning the lower price of gold is likely to be very fleeting.
Yesterday (Thursday) saw the 10-year Treasury not hit a one-year high, leading to an instant clamour to buy and forcing selling pressure on precious metals and stocks. Marketwatch said of the price action, “A rise in bond yields, with the 10-year Treasury note TMUBMUSD10Y, 1.519% advancing to above a psychological threshold at around 1.5%, has put pressure on stocks and gold, forcing investors to reassess the relative value of owning either asset against the backdrop of richer rates from risk-free Treasuries.”
However, what’s notable is that the Federal Reserve itself and investors are at odds as to the pace of recovery signified by the rising yields. While investors have snapped up Treasuries, the Federal Reserve is said to consider any meaningful recovery to be most likely to take place in the second half of the year, provided that the vaccine roll out continues at pace and isn’t sent off course by the emergence of new vaccine-resistant variants.
Reuters reports that the Federal Reserve is also anticipating additional fiscal stimulus measures before economic recovery – something which heavily favours a surge in gold pricing. In its report, Reuters stated that the Feds “are shrugging off the surge in longer-term U.S. government bond yields as a sign of growing optimism about the economy, which could pick up steam as more people receive vaccinations against the coronavirus. Fed officials said the increase in yields is a reflection of the confidence that a robust economic recovery is on the horizon for the second half of the year, as more vaccines are distributed and with more fiscal stimulus likely on the way.”
Also of note is the fact that yesterday’s yields breakthrough has not impacted the Fed’s mandate of maintaining ultra-low interest rates and monthly £86 billion ($120 billion) purchasing of mortgage securities and government bonds. The Federal Reserve has previously stated that this will be the case throughout 2021 and into 2022 and potentially even longer. The measures will remain until the economy and employment data reaches near pre-pandemic levels, setting gold up for long term strength.
In the short term however, this presents a fantastic window to buy. In early EU trading this morning, the yellow metal was set at £1,261 ($1,757). This dip is happening now but with all signs pointing to a new surge, you’ll need to move quickly to benefit. Act now and add gold to your portfolio as soon as you can.