The weekly chart of the real rate (top) has moved into its bullish zone, between the upper blue and red bands. This activity comes after a hawkish delivery by Fed Chair Powell at Jackson Hole on Friday.
The real rate moved positive during the week beginning 25 April (red dashed vertical). This movement coincided with the breakdown in the precious metal (middle). The correlation coefficient between the two turned down around this time. It's now a negative relationship.
As such, the positive real rate continues to apply pressure to XAUUSD. Given the current inflationary environment, capital prefers the potential for real return over the safety of gold. This preference, especially since Jackson Hole, is because the market anticipates further hikes, which will be a headwind for gold.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.