Ultra-low real yields to keep gold elevated

Despite some jitters in equity markets, commodity prices generally ended the week higher. In what is becoming a well-worn pattern, optimism about a robust economic recovery continued to build – this time in response to the final agreement of a EU ‘Recovery Fund’ – before another flare-up in US-China tensions and a rise in new confirmed coronavirus cases helped to prompt a sell-off in risky assets. Meanwhile, the gold price is now close to its all-time high. And with real yields likely to remain low for some time, we now expect the gold price to remain elevated for the foreseeable future. Next week brings an FOMC meeting, China PMI data and, most importantly, our Commodities Overview Outlook. We expect the FOMC meeting (Tuesday and Wednesday) to be uneventful, although the Fed may strengthen its forward guidance. Meanwhile, the ‘official’ China PMI data for July (Friday) are likely to point to a further recovery in activity in Q3. Finally, our Commodities Overview Outlook (Monday) will lay out our view that commodity prices will make further gains as economies continue to reopen, but that industrial metals will do especially well thanks to a surge in Chinese infrastructure spending.