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Gold is up as negative US real yields fall again as the rally shows few signs of abating or making a significant pullback.

Instead, gold prices continue to trade tangentially to the rise in Covid-19 case counts globally. Prices remained strong as Covid-19 cases posted another record rise while new lockdowns in parts of the UK and Australia and signs of fresh upswings in Europe and Japan make for a disconcerting picture.

Investors will continue to have a favourable view of gold partly on ongoing Covid-19 concerns.

While gold demand shows few signs of retracing, the yellow metal could face fierce short-term resistance at $2000 given the growing view we could be at the end of the runway for the US yields to fall further. And the US Treasury is running out of the exorbitant privilege of the stronger dollar and safe haven flow.

Gold has moved through its all-time highs as the story continues to be the Federal Reserve’s money-printing coupled with the potential USD1 trillion fiscal stimulus package for pandemic relief. Real rates continue to trend lower, and the dollar continues to weaken, so the environment should remain supportive for gold.

But I think it is essential to break down gold views into short-term and medium to longer-term narratives.

Over the short term and given gold prices enduring correlation to US bond yields, the real story for gold to move higher should be how much further can US bond yields fall.

But over the medium term, it is how much can real yield fall as inflation picks up. And will the Feds show a firmer commitment towards allowing above-target inflation to materialize for some time before normalising policy which could further pressure real yields lower, undermining the dollar and sending gold much higher?

The return of inflation after decades of sluggish price rises; however, it is precisely what many gold buyers are hedging. Probably not this year, but hyperinflation is likely coming to a screen near you.

Finally, what makes gold investing so appealing over the short or the medium-term perspective is that when US real yields are low or negative, investors have no opportunity cost in owning bullion.

Gold markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp