As the dust continues to settle from last week’s volatility, stability is returning to the gold market. There is still a risk that the announcement of a huge fiscal support package would drive Treasury yields higher once more and pull gold lower. However, beyond that with the strong fundamentals still underpinning gold, we would view that this recent correction as a medium-term buying opportunity.
The big gold correction hit almost exactly -10% at the extreme, driven by a near term bounce in yields and the dollar. However, the moves for yields and the dollar are tailing off now and the corrective momentum on gold has also stabilised.
Even though the correlation is less strongly negative than it was a week ago, if yields start to pull higher once more, then there could be another leg lower on gold.
It is a similar story on the dollar. If Dollar Index can regain upside recovery momentum through 94.00 then we can expect gold to be pulled lower again.