If the adjustment in US real interest rates, equity and FX markets over the past years pushes long term real yields, US equity risk premium and US dollar back to record highs, then it is bearish for dollar, Deutsche Bank said. It could cause a repeat of September 2011, when prices started moving downward, the bank added.
FRANKFURT, GERMANY: Gold prices could turn bearish on prospects of betterment in US growth although recent efforts by the US Federal Reserve to cap long term yields provide welcome support to gold price, atleast in the near term, according to Deutsche Bank.
If the adjustment in US real interest rates, equity and FX markets over the past years pushes long term real yields, US equity risk premium and US dollar back to record highs, then it is bearish for dollar, Deutsche Bank said. It could cause a repeat of September 2011, when prices started moving downward, the bank added.
"While last week’s Fed announcement surprised financial markets, we doubt it reverses the overal trend towards higher long term nominal and real rates. Consequently the modest rebound in gold prices that occurred during the third quarter of this year may be difficult to sustain, in our view. However, global rates on a forward basis are finally approaching historical norms and this might provide the first sign that a large part of the adjustment in interest rate markets has already occurred.
The next part of the interest rate process will be forward guidance from the Fed and the re-pricing of monetary policy over the next few years. However, we note that short term real interest rates would need to surpass 3% to be unambiguously negative for gold returns.
"As a result, we would view long term, not short term, real interest rates as a more reliable yardstick for determining the outlook for gold heading into 2014. On this basis real interest rates are rising towards levels which imply the ability of extracting positive returns are disolving rapidly particularly compared with the negative real interest rate environment that persisted throughout most of last year.
courtesy of bullionstreet
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