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- After experiencing a significant rally in the first half of 2020 amid rising concerns over monetary policy due to the Covid19 crisis, gold has been retracing lower in the past 9 months as investors have been gradually losing interest in the 'currency of the last resort' with more and more developed economies planning to reopen their economy (due to the acceleration in the vaccination campaign).
- In addition, EM policymakers in most of the central banks have confirmed on several occasions this year that the rise in inflation was only going to be 'temporary' and that inflationary pressures should start to ease in the second half of 2021, which could have emphasized the downward pressure on the commodity.
- This chart shows the performance of EM FX currencies against gold since August 7 2020, which is the day when the precious metal reached its high against most currencies (one exception is the TRY, which has continued to depreciate against gold with XAUTRY reaching an all time high on November 6 2020).
- As expected, the TRY is the worst performer, appreciating by a mere 1% against gold; the TRY has remained weak due to the elevated political and economic uncertainty in Turkey and the recent rise in 'staff turnover' at the CBRT.
- On the other hand, the ZAR remains the best performer, up 41% against gold since August 2020, mainly driven by the elevated real interest rates. With the 10Y yield currently trading at 9.15%, South Africa currently offers the best 10Y real yield among the EM world (nearly 6% adjusted by CPI inflation).
- The MXN and CLP are the other two best performers, up 28.5% and 28%, respectively, in the past 9 months.