Gold’s Price Could Rise as Investors Predict a Soft Landing

According to Tim Hayes, the chief global investment strategist at Ned Davis Research, investors are increasingly betting on a soft landing scenario, which could result in a rise in gold prices at the expense of the U.S. dollar. Hayes has downgraded the U.S. dollar from neutral to bearish, while upgrading gold from neutral to bullish.

The ICE U.S. Dollar Index, which measures the currency against a basket of six major rivals, has declined by 2.4% year-to-date. On the other hand, the most-active gold futures have gained 7.6% so far this year, according to FactSet data.

Hayes notes that the U.S. dollar index has recently fallen below its 50-day moving average, while gold futures have risen above their averages over the 50-day stretch. This is significant because in January, gold experienced what technicians refer to as a “golden cross,” where its 50-day moving average rose above the index’s 200-day moving average. In contrast, the U.S. dollar saw a “death cross.”

The 50-day moving average is a representation of an asset’s short-term price trend, while the 200-day average measures the long-term trend. A golden cross is generally seen as a bullish signal, indicating a strengthening uptrend. Conversely, when the 50-day average crosses below the 200-day average, it is known as a death cross.

This development suggests that gold’s price may continue to rise, while the U.S. dollar could face further declines.

Read: U.S. Dollar Could Soon Wipe Out All of Its Post-Pandemic Gains, Soc Gen Strategist Warns

Dollar Weakens, Gold Gains: Ned Davis’s Composites Signal Buying Opportunity

Ned Davis’s short-term technical composites are currently indicating a buy signal for gold and a sell signal for the dollar, as per analyst Hayes.

Hayes suggests that if the markets have already factored in a worse economic scenario than what is actually visible, then it is relevant to consider the historical performance during periods without a global slowdown.

According to Hayes, when a global slowdown has been absent, the dollar has declined at an annual rate of -1%, while gold has gained an impressive 10% per annum. These figures were observed for more than half of their respective historical periods.

Furthermore, in a soft landing scenario, bond yields tend to trade sideways or decrease.

A soft landing scenario refers to a situation where the US experiences a decrease in inflation without entering into a recession.

According to Hayes, the dollar weakens when the difference between the yield on the US 10-year Treasury note (TMUBMUSD10Y, 3.831%) and the yield on non-US 10-year government debt narrows. Conversely, declining Treasury yields would benefit gold, says Hayes.

As of Friday, the yield on the 10-year Treasury note dipped 2.2 basis points to 3.829%, according to data.