Gold's explosive rally is not 'quite finished yet,' a Standard Chartered strategist said

• Gold faced its worst daily drop in seven years last week, but one Standard Chartered strategist thinks the precious metal's rally is far from over.
• Gold broke $2,000 per ounce for the first time in history at the start of the month, and is up 31% in 2020.
• Standard Chartered 's Manpreet Gill told CNBC's Street Signs Asia: "We think gold's run ... hasn't quite finished yet."
• He said it is "ultimately a great environment for gold" assuming bond yields remain low.
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Just when gold prices seem to have taken a bit of a breather after their historic rally above $2,000, Standard Chartered thinks the surge in the precious metal "hasn't quite finished yet."

Manpreet Gill, head of fixed income, currencies and commodities at Standard Chartered told CNBC's "Street Signs Asia": "We think gold's run ... hasn't quite finished yet."

"It comes back to interest rates. One of the best explanations of why gold has surged the way it has through this year have been bond yields," Gill said.

The strategist added: "Net of inflation or what we call real bond yields, those have been sort of on a one-way tear and that's sort of lined up very nicely with move in gold."

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Gold has faced a rollercoaster journey in recent weeks. It first broke to record highs at the beginning of August, before slumping last week, facing its worst daily drop in seven years, bringing into question whether the rally was inflated and if a huge meltdown may be underway.

Gold remains up 31% year to date, and is still above $2,000 per ounce, but is down about 3% from its high of $2,063 at the beginning of the month.

But for Gill, the rally is far from over. He attributed last week's slowdown in gold prices to higher bond yields.

US Treasury yields rose last week after positive progress was made on coronavirus vaccines. The yield on the benchmark 10-year US Treasury Bill rose to a weekly high of 0.71%.

Gold does not yield a return, so when yields are higher it makes it less attractive to hold gold. When yields are lower, it means investors have to give up less potential yield in order to hold the precious metal.

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Gill said: "We have quite a bit of one-sided positioning in gold and I think, you know, that's actually unwound quite quickly. A lot of our proprietary indicators are telling us exactly that.

He said it is "ultimately a great environment" for gold assuming central banks continue to keep bond yields low.