Basically ignoring traditional disadvantages! Is this wave of gold's rise really unstoppable?

The price of gold recently rebounded strongly and broke through the 2,700 US dollar mark for the first time on Friday. This week's increase was close to 2%. This is about four times the 0.5% increase in the S&P 500 index this week. It is also the fifth week gold has risen.

The Federal Reserve began a cycle of cutting interest rates last month. The rate cut was 50 basis points. Since then, gold has regained its momentum. However, the latest rise occurred when US bond yields and the US dollar rebounded, and this may have suppressed the rise in gold prices.

Generally speaking, higher yields usually reduce the appeal of gold because gold does not generate any returns. A strong dollar also harms commodities, as it makes it more expensive for buyers outside the US to buy gold. Andrew Brenner of NATAlliance Securities wrote, “We're trying to decipher some worrying signs. Why is the price of gold continuing to hit record highs when the US dollar strengthens?”

Tim Hayes, chief global investment strategist at Ned Davis Research, has pointed out some factors that may drive the rise in precious metals prices. Commenting on global aggregate bond yields, Hayes wrote that the reaction of the gold market showed “investors are skeptical that high yields will continue.”

Over the past month, the 10-year US Treasury yield has soared from around 3.7% to 4.08%. The US dollar index, which tracks the performance of the US dollar against currencies such as the euro and yen, has risen nearly 3% in the past month.

However, Hayes pointed out that US bond yields are expected to decline in the next year. He added, “Additionally, US 10-year and 3-month Treasury yield spreads have yet to break out of the 'flat or inverted' model, which indicates that bond yield trends have not had an adverse impact on gold.

Over the past 20 years, under this model, gold has seen an average annual increase of 23%, outperforming other asset classes, all at a time when traders expect the Federal Reserve to cut interest rates further.

According to the Chicago Mercantile Exchange Group's US Federal Reserve observation tool, the market expects the probability that the Fed will cut interest rates by 25 basis points in November to be 88%, and the probability of continuing to cut interest rates by 25 basis points in December is 75.6%.