BNY’s Geoff Yu notes that Gold has broken below $4,000/ounce after a weak spell since mid-March, as rising global front-end yields and fading debasement fears pressure precious metals. Yu links the latest leg lower to repricing in Federal Reserve (Fed), Bank of England (BoE) and European Central Bank (ECB) expectations, and argues that renewed Gold outperformance would likely require a loss of fiscal and monetary credibility.

Higher yields erode debasement narrative

"Gold prices fell through $4000/ounce yesterday, marking a poor run since mid-March. Precious metals fell sharply during the conflict itself even before policy expectations corrected sharply. When the market needs liquidity, gold’s intrinsic properties undermine performance."

"The most recent run is due to repricing in global interest rates. Although tightening expectations have come off the highs during the height of the conflict – the market has moved from four hikes priced for the Bank of England to less than one. Gold prices have continued to decline."

"Two factors are driving the selloff. First, Fed repricing was late: energy self-sufficiency was ultimately unable to counter global supply risks and Fed Chair Kevin Warsh has responded in kind. Coupled with an assertive European Central Bank, global front-end yields continue to rise strongly."

"Second, gold and precious metals were seen as defense against “debasement” in Q1, not just against dovish monetary policy but also profligate government spending. The conflict has, perhaps more surprisingly, driven up global real rates as inflation break-evens have not moved as much as nominal yields. By design or accident, markets are exerting strong fiscal discipline against government spending, also negating one of the key drivers of precious metals demand."

"A loss of fiscal and monetary credibility is required for renewed performance, but it’s proving difficult to identify immediate catalysts."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)