Massive US Treasury Short Positions a Potential Boon for Gold

As a follow up to my most recent commentary on gold and interest rates, I have attached what I consider to be two very interesting slides. The first relates to the net positioning of two of the most widely traded long-term US Treasury futures - 10-year and 5-year Treasuries. It shows that hedge funds' Treasury short positions are at a massive 20-year high. Now this has tremendous potential importance and relevance from a gold price perspective. As we discussed previously, gold is driven by ‘real’ interest rates (nominal rates less inflation). The second graphic that I've attached shows clearly the relationship between real interest rates and the price of gold - which move in opposite directions. Bond prices have started moving higher since Trump's election and Treasuries have become shorted as a result, with yields declining. As yields fall, the shorts on the treasuries get squeezed and yields fall further. When yields decline, real rates decline (because inflation has remained relatively constant). And when real rates decline, gold has the opportunity to push higher. So watch this space.


Gavin Wendt
Founding Director
MineLife

Gavin has been a senior resources analyst following the mining and energy sectors for the past 25 years, working with Intersuisse and Fat Prophets. He is also the Executive Director, Mining & Metals with Independent Investment Research (IIR).

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.