Fed may be trying to control the yield curve and what it means for gold – Saxo Bank


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(Kitco News) – The Federal Reserve has started its two-day monetary policy meeting at a time when interest rates are rebounding from March lows.
Ole Hansen, head of commodity strategy at Saxo Bank, said the price of gold is at the cutting edge as attention shifts to bond yields. Currently, 10-year bond yields are around 82 basis points, down from the June 1 high but sharply up from the March lows.
Hansen said that with rising bond yields, questions are beginning to arise about whether the Federal Reserve can control the yield curve.
“The decision to introduce yield caps on maturities of up to five or perhaps even ten years could be an important next step for risky assets, the dollar and not the least, gold,” said said Hansen.
However, he added: “Any hesitation on the part of the Fed tomorrow, on the other hand, could mean that risky assets have exceeded their potential for now and see a sharp correction in short-term risky assets and a safeguard in the US dollar. “
Hansen noted that controlling the Federal Reserve’s yield curve would be a game-changer for gold. He added that the US central bank decision could be the trigger for gold to break out of its current range.
Hansen noted that with the control over the yield curve, the Federal Reserve would fundamentally fix a nominal yield for a specific term and intervene to buy these bonds if its yield target was reached.
“Such a move would make fixed income investments completely useless as safe havens, especially in a period when inflation is expected to return,” he said.
Hansen added that with the amount of stimulus that central banks and governments inject into the financial markets, it is inevitable that inflation will rise, causing real interest rates to fall.
In this environment, gold will remain an attractive alternative, he said.
The comments come as the price of gold has managed to trace most of its losses after recently falling to an eight-week low. August gold futures last traded at $ 1,722.80 an ounce, up 1% on the day.
Although Hansen said he was optimistic about long-term gold, he noted that prices are frozen and need a new catalyst.
“From a technical point of view, a break above $ 1,800 / oz would be the necessary trigger to send gold to a new record, thus joining the multiple records already observed in other currencies so far this year, “he said.

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