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The recent sell-off in Gold has happened while Qi model value has continued to trend higher. That divergence has opened up a Fair Value Gap of almost -1 sigma or -3.3%.
The traditional macro patterns that explain the variance in Gold prices have not worked over the last 6 months. Qi’s model remains out of regime today but model confidence is creeping higher.

If we were in regime that would be a significant level. There have been 13 instances of gold being this cheap since 2009 – so once a year on average - with a 62% hit rate & +1.0% average return.

The caveat is we need to get model confidence over our 65% threshold & Qi’s momentum indicator which points to a new downtrend. Watch & wait for now. RETINA™ clients - ask @QiTradeBot to track so you get real time alerts.
In terms of drivers, the traditional relationship with real yields has broken. Gold’s relationship with real yields has flipped from negative to positive. The more influential driver of gold are risk appetite & credit spreads. The LT model emphasises gold’s role as a safe haven play – risk off & wider credit spreads equate to higher gold.

The same two drivers feature prominently on Qi’s ST model but gold’s role as an inflation hedge also appears with rising positive sensitivity to US inflation expectations.

And that squares the circle. Today’s levels of inflation removes government bond’s role as an effective haven. A world characterised by uncertainty & price pressures, arguably make gold a more effective hedge than US Treasuries. One that, at one sigma cheap to model, is starting to look interesting.
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