Gold prices remain stable due to the strength of the dollar and rising yields on US Treasuries

In the last few articles, we have talked about the multiple factors that have created downward pressure on the prices of gold and silver. Of all these factors, there are two that seem to have the greatest impact on creating negative market sentiment towards safe-haven assets, gold and silver. This is the strength of the dollar, a direct result of the rise in yields on US Treasuries and notes. From March 9 to 11, both metals strengthened as they gained in value. After trading at an intraday low on Monday March 8 of $ 1672, the next three trading days would take the precious yellow metal to an intraday high of $ 1739. These gains seen over three trading days were the result of dollar weakness aided on the downside by falling Treasury yields, as well as market participants actively buying the downside.

This is why the current activity in both gold and silver is not reacting so severely to the strength of today’s dollar and rising yields. This is a 180 ° pivot to the reaction, and in some cases, an overreaction seen recently as the dollar gained, leading to lower prices for ten-year notes selling for less and returning a yield. higher.

At 2:47 p.m. EST, gold futures are the most active Comex contracts as of April 2021, essentially unchanged. Gold futures are currently pegged at $ 1,723, after factoring in the current gain of $ 0.50, which is a 0.03% lead. Meanwhile, the US dollar index is up just over a quarter of a percent and is currently pegged at 91.66. This means that the dollar is creating headwinds which have been overcome by market participants who are actively buying the precious metal.

This can be clearly illustrated when we look at the spot or physical price of gold through the eyes of the KGX (Kitco Gold Index). According to the index, spot gold is currently pegged at $ 1,725 ​​after factoring in the current gain of $ 1.90. On closer inspection, we can see that market participants offered spot gold prices that were $ 6.70 (+ 39%) higher; however, in the case of cash or forex, which lost $ 0.19 in trading. Today’s price drop was driven by the same catalyst, a combination of the strength of the dollar that contributed seven cents to today’s decline, with the remaining $ 0.12 drop directly attributable to to market participants who offered this precious metal on the downside.

As reported in MarketWatch, Ross Norman, managing director of Metals Daily, said: “It’s all about US Treasury yields again, with a firm dollar compounding the gold problem.” He also tempered his bearish sentiment by saying: “Encouragingly, physical demand in Europe is incredibly good with contested supply chains and the same is true in China where gold is now trading at a premium of 10. $ an ounce versus London prices Demand for exchange traded funds is comparatively lackluster. “

All else being equal, gold managed to end the week with fractional gains. April gold futures are up about 1.3% in trading this week, with silver gaining about two ½%. For the past three consecutive weeks, gold and silver prices have closed below their opening price earlier in the week.

The biggest headwind that is currently keeping gold and silver in check is the continued rise in Treasury yields. Currently, the ten-year note is trading at around 1.62%, a few steps from its recent price of 1.624%.

The bearish market sentiment that has been so pronounced recently for gold and silver appears to be consolidating, which could point to a near-term low. The fact that the price of gold is holding above $ 1,700 as it trades $ 25 above that price is impressive considering the uphill battle that bullish market sentiment has climbed. One question that’s puzzling enough is Gold’s timidity in the face of an almost absent response to President Biden’s “American Rescue Act” passing, which he enacted yesterday.

On a technical basis, there are more bearish indicators than bullish ones. Perhaps one of the most alarming technical indicators is the top three moving averages used by market analysts to determine whether short-term, intermediate, and long-term market sentiment is either bullish or neutral. In the case of the three moving averages, they are currently well above current prices, which is a clear indication that we are in a period of correction. With much less weight is the fact that this recent correction has brought gold and silver prices very close to their 61.8% Fibonacci retracement. The data set used to create the retracement began in mid-March, when the price of gold traded at a low of $ 1,450, and then began a dynamic rally that ended in August, resulting in the highest gold price in history $ 2,088.

On a technical basis, silver futures have not suffered the same type of damage when it comes to its moving averages, with the most active contract of May 2021 currently trading above 200 moving averages. and 100 days. The 50 day moving average which is currently pegged at $ 26.50 appears to be where the current resistance lies. The performance of silver, which is far superior to that of gold in terms of percentage gains, could very well be due to the fact that this metal has an industrial component and demand, which has supported the price of silver as the US stock markets continue to trade considerably higher. .

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Wishing you, as always, good trading and good health,