Bond Yields, Diesel Prices Drive Gold Price Action

Gold and silver prices have been moving in different directions, but that's not the main story. The real action is what's driving their price movements.

The traditional explanation for gold's rally has been its use as a hedge against the debasement of the dollar. However, StoneX's precious-metals desk now argues that this narrative is losing steam. Instead, bond yields are taking center stage and influencing gold prices more than ever before. As real yields reassert themselves, the market is moving away from treating gold as a pure currency hedge and towards viewing it as a real-yield instrument.

This shift in perspective changes what investors should focus on next week's Fed decision and its impact on bond markets. If real yields remain in control, the Fed's actions will be crucial in determining gold prices, rather than the dollar index.

The World Gold Council reported that global gold ETFs saw a record-breaking $18 billion inflow last month, with collective holdings reaching an all-time high of 4,189 tonnes. This influx of capital was not driven by Asian retail investors but by European funds, which posted their best month ever at $7.9 billion.

The price of diesel has also risen to a record-breaking $6 per gallon in the US due to the ongoing conflict between the US and Iran. This increase in energy costs will feed into inflation data and potentially lead to higher interest rates, benefiting gold prices. The metal doesn't need a debasement story or a Fed pivot to gain traction; it just needs rising energy costs.