Rising geopolitical tensions in the Middle East have driven oil prices to their highest levels since October 2018. However, this boom in the commodity is not affecting gold prices, as the precious metal continues to face serious obstacles from rising bond yields.
According to media reports, oil prices traded near a three-year high after Houthi rebels attacked Saudi Arabian oil facilities over the weekend. And even though prices dropped slightly on Sunday, they are still high.
The gold market reacted slightly to this, briefly exceeding $ 1,700 per ounce. However, the increase was temporary, as Treasury yields continue to rise.
Bart Melek of TD Securities said that along with the rise in oil prices, other commodity markets such as copper and lumber are pointing to higher inflation, which should play a positive role for gold. But he added that the Federal Reserve would not want to limit bond yields.
Meanwhile, Lukman Otunuga of FXTM said that low gold prices, paralleled by higher oil prices, are a sign that the precious metal is at the mercy of a rising dollar and rising bond yields.
"One would expect that a jump in Brent crude would benefit gold, especially since rising oil prices could lead to higher transportation costs and higher prices for many commodities. However, the precious metal remains depressed and somewhat disliked as inflationary expectations hit the bond market, leading to higher yields," Otunuga said.
"Usually, a zero-yield asset is trapped in a struggle not only with rising bond yields, but also with the prospect of higher interest rates. In short, this is not the right environment for gold to shine," he added.
While bond yields are also detrimental to stock markets, Melek noted that these assets could withstand their rally since a $ 1.9 trillion stimulus bill was passed on Saturday.
"Many believe that there will be enough money to support stocks because of the new measures to stimulate the financial markets," Melek said.
Even with rising oil prices and rising inflationary pressures, Melek said he sees more problems for gold in the short term. He also said that gold will most likely test $ 1660, and if it attracts some interest from buyers, it could return to $ 1,730 an ounce.
