Gold has finally pulled back from its recent run higher recording its largest single day drop in the last 7 years this week. US10 year bond yields broke higher midweek which preceded the large fall in both gold and silver prices. Investors will be keeping a careful eye on real interest rate levels going forward to try and see how far the gold bull run will ultimately go. The present move lower, although large, was still a pullback from within the existing medium term bullish trend for gold. Goldman Sachs are projecting gold prices of $2300 by year end.

Key events from the past week

  • NZD: RBNZ cash rate, August 12. The RBNZ increased their quantitative easing (LSAP) programme to $100bn from $60bln and extended the length of the programme to 20+ months. The RBNZ were open to negative interest rates. This bearish outlook led to strong selling in the NZD out of the decision.
  • XAUUSD: Gold pulls back aggressively, August 11. Gold fell more than USD 100/oz in 24 hours this week as US 10Y bond yields broke out higher. A correction in gold was due and buyers came in at the $1880 50% fib retracement level from June lows. Will gold re-test recent highs or correct even lower next week?
  • AUD: Employment data, August 13. Employment data is a key focus for the RBA. July’s data showed an addition of 114.7k jobs and 43.5K of these were full time. The unemployment rate also came in lower at 7.5% vs the 7.8% expected. However, positive this data does not reflect the lockdown impact of Victoria state.

Key events for the coming week

  • USD: FOMC minutes, August 19. The FOMC minutes will be carefully viewed for any evidence of the Fed wanting to use yield curve control. With inflation rising investors will want to know how likely the Fed are to follow the Reserve Bank of Australia in keeping bond yields artificially low.
  • EUR: Flash PMI’s, August 21. The Eurozone PMI’s have seen a positive recovery from the worst of COVID-19. Another strong reading here will continue that narrative as long as European COVID-19 cases don’t rise too high.
  • COVID-19: Case count growing in Europe. This week saw a further increase in COVID-19 cases in mainland Europe. As we see a continued fall in US cases, yet a rise in European cases this has the potential to weaken the EURUSD.