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It is a well-known fact that gold prices are extremely sensitive to the rise or fall of 10-year Treasury yields. The higher the yield on the 10-year note (interest paid to the buyer) has an inverse correlation with the price of gold. This means that when the yields on US debt securities rise, it pushes gold to fall in price. Conversely, when yields on US debt securities fall, it tends to create bullish nuances for the price of gold.
Today, market participants have witnessed the exact opposite, with 10-year Treasury yields hitting their 10-year low and gold prices also trading lower on that day. The 10-year note traded at a low of 1.179%, the lowest yield in the past five years. The 10-year note closed at 1.193% and gold futures rallied from today’s intraday low of $ 1,795.
What is most disconcerting is that gold futures traded under tremendous pressure when the yield on the 10-year note fell to a low of 1.179%. However, it is the strength of the dollar that explains all of today’s decline in gold futures. The US dollar index is currently trading up 15 points, a net gain of + 0.17%. Compared to the current fractional decline in the price of gold which is currently -0.09%, it is clear that market participants were bidding on the precious yellow metal and it was not the full strength of the dollar that explained today’s drop.
Stocks around the world as well as the US all traded under pressure today, with the Dow Jones Industrial Average losing -2.09%, the NASDAQ composite losing -1.06% and finally the S&P 500 losing -1.59% today.
Analysts from several platforms attribute the decline in global stocks to rising infection rates of the Delta variant. Typically, this would also move US debt instruments upward as they have in other countries. So the fact that we have seen a drop in yields in the United States is a bit confusing.
As reported by MarketWatch, “Gang Hu, Managing Partner and TIPS Trader at WinShore Capital Partners, says the once popular reflation trade is already giving way to an entirely different trade as investors begin to consider both a US growth slower than expected. , as well as the prospect of a prolonged period of higher inflation. What he calls “the tapering trade” – in which investors sell stocks and commodities while buying long-term Treasuries – has the potential to lower the 10-year rate to as low as 1% at the same time. over the next two months, he said.
At 5:21 p.m. EST based on gold futures, the most active August 2021 Comex contract is currently pegged at $ 1,813.30, which is a net decrease of $ -1.70 from at the close of Friday. However, compared to today’s open of $ 1,811.60, gold futures have gained a few dollars from the opening price.
Technically speaking, today’s low was less than four dollars off the 100-day moving average which is currently set at $ 1,791.
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Wishing you, as always, good exchanges and good health,
Warning: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a solicitation to trade in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and / or damage resulting from the use of this publication.
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