Last week, gold prices once again fell below $1,500 per ounce (though not as low as the week before), before rallying to close the week at $1,493.50 per ounce. Gold still remains in a consolidation pattern.

From a broader perspective, Harry Tchilinguirian, head of commodity research at BNP Paribas, discovered a correlation between gold and negative-yielding investment-grade debt, as shown in the following chart.

Says Tchilinguirian, “Looking ahead, we expect the Fed to make three 25 basis points (bp) cuts: in December, March and June. … Given that nominal yields tend to fall with Fed cuts, real rates could move and stay in negative territory, raising the appeal of holding gold as long as economic uncertainty persists. … While real yields are a key driver for gold’s fortunes, the nominal yield environment on its own is also supportive for gold relative to alternative safe-haven assets. Recent trends highlight a clear co-movement between bond yields and gold prices. As yields turn negative on investment-grade corporate and sovereign bonds, gold moves steadily higher.”

 Rick Andrews is president of Avant Capital Management