Weekly Part 1: China Wants The Gold

Gold, Real Rates, and the Yuan

We note that the relationship between Gold and Real Interest rates has become stretched of late as Gold continues to rally despite real rates being strong. Five days ago we noted the groundswell of Chinese buying spreading from the PBOC to its citizenship here. This post is a further observation and conceptual explanation of what was observed.

Gold And US Real Rates Are Breaking

Gold should drop given the real rate move, and it had, but not nearly enough. Now Gold is rallying with real rates chopping round.  So Gold is ignoring that relationship for now. Why? The first answer for us is: it is still “buy season” and the month of January is historically a good one for US investment demand. But that can’t be all of it.

Gold’s Relationship with Real US Rates is Shredding of late…

So we looked at the relationship with the dollar, which is always a default factor. We found the USDCNH pair, in combination with other obseravtions most interesting.