Gold Q4 Fundamental Forecast: Outlook Continues to Weaken

Gold Talking Points:

• Below is a preview from the Q4 Fundamental Forecast for Gold.
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Looking ahead for 4Q’21, the forecast for rising real US yields has only improved, leaving gold prices in difficult territory for the rest of the year. In an environment defined by investors seeking out higher yielding and more growth-sensitive assets, gold prices may struggle outside of isolated bouts of risk aversion around China’s Evergrande collapse or the US debt ceiling debate.

While the combination of loose monetary policy and expansionary fiscal policy should theoretically be bullish for gold prices, it appears that we’re nearing the end of this era of pandemic stimulus policies. The Federal Reserve has moved closer to officially beginning its winddown of asset purchases, and the scope and scale of additional government spending by the Biden administration appears more limited than previously anticipated – if anything happens at all.

Gold Futures versus US Treasury Nominal, Real Yields and US Breakevens (September 2016 to September 2021) (Chart 1)

Sources: Bloomberg, Federal Reserve

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— Written by Christopher Vecchio, CFA, Senior Strategist