Gold futures are inching up on Friday despite higher Treasury yields and a firm U.S. Dollar, keeping the safe-haven metal on track for a third straight weekly gain. The strength this week could be a sign that investors may be starting to bet that rising Delta variant cases will lead to a slowdown in the global economy.
Investors are monitoring the direction of Treasury yields for clues as to the timing of its next major move. If yields continue to fall then gold is likely to be underpinned. However, if yields rebound from this week’s low then gold could feel renewed selling pressure.
Benchmark U.S. 10-year Treasury yields are edging higher on Friday, from a more than four-month low hit in the previous session, while the dollar bounced back from yesterday’s weak session. Higher yields translate into a higher opportunity cost for holding non-yielding bullion, while a stronger dollar tends to reduce foreign demand for dollar-denominated gold.
At 09:56 GMT, August Comex gold is trading $1804.60, up $4.40 or +0.24%.
Fed Concerned About Global Vaccination Rates
The U.S. Federal Reserve’s Mary Daly told the Financial Times that low vaccination rates in some regions of the world pose a threat to the United States and global growth, adding that the central bank was fully committed to eliminating shortfalls in employment.
Renewed Worries Over Pandemic after Japan Declares State of Emergency
The Olympics will take place without spectators in host city Tokyo, organizers said on Thursday, as a resurgent coronavirus forced Japan to declare a state of emergency in the capital that will run throughout the Games.
Prime Minister Yoshihide Suga said it was essential to prevent Tokyo, where the highly contagious Delta variant of COVID-19 variant was spreading, from becoming a flashpoint of new infections.
“We absolutely must avoid Tokyo being the starting point again of another spread of the infection,” Suga told a news conference.
Shaky US Labor Market Recovery Supportive
Gold is being underpinned by concerns over the U.S. labor market recovery given last week’s mixed U.S. Non-Farm Payrolls report and Thursday’s surprise weekly initial claims rise.
U.S. jobless claims rose slightly last week to 373,000, above a forecast 350,000 applications in a Reuters poll. Recent labor market reports indicate substantial progress needs to be made for the Fed to raise interest rates.
Meanwhile, the U.S. Federal Reserve minutes from its June 15-16 meeting showed “various participants” felt conditions for reducing the central bank’s asset purchases would be “met somewhat earlier than they had anticipated.”
There aren’t any major U.S. economic releases on Friday, but gold could still be driven by the stock market’s performance.
Another sharp sell-off in U.S. equities could drive investors into the safety of U.S. Treasury bonds, pushing yields lower. If yields drop below yesterday’s three-month low then gold could break out to the upside.