A welcome change for gold as tech selloff fails to spark heavy liquidation, breaking the recent pattern

Gold came under some pressure yesterday amid the tech stocks rout. The good news is that we haven’t experienced the same strong liquidation that we’ve seen in the past weeks.

This might be due to the change in context and positioning.

We now have a Democratic Congress which is going to restrain fiscal expansion and likely limit the rise in Treasury yields.

At the same time, we still have the war in Iran that is likely to keep inflation expectations high.

The result is lower real yields, especially with the rout in tech stocks weighing on growth expectations and nominal yields.

The positioning in gold is also much less crowded than at the start of the year.

BofA's FMS survey had already shown in July that gold was the most undervalued since 2023, which should provide further support for the precious metal.

At the same time, if we get a de-escalation, we could see a dovish repricing on easing inflation concerns, which could also support gold in the short-term.

Soft data could lower rate hike probabilities further and trigger a rally in gold.

The buyers, on the other hand, will want to see the price breaking higher to pile in for a rally into the 4,500 level next.

From investingLive