Gold futures are trading higher on Tuesday as the U.S. Dollar eased from a three-month high, making the dollar-denominated asset a more attractive investment. Weaker Treasury yields are also providing support. Updated reports predicting a slowdown in the global economic recovery due to rising COVID-19 cases is likely the catalyst behind the market’s early strength.
Bullish gold traders feel the uncertainty over the potential damage to the global economy from rising infections could encourage several major central banks to curtail plans to trim stimulus measures or even raise interest rates. Stimulus and low rates have been supporting gold prices since its rally began at the start of the pandemic in March 2020.
At 10:50 GMT, August Comex gold futures are trading $1817.20, up $8.00 or +0.44%.
August gold futures topped at $2112.70 the week-ending August 7. Prices have fallen since as economies opened up, aggressive stimulus measures slowed and the vaccination process began.
Even with Treasury yields falling and infections rising from recent lows, there are probably enough people vaccinated to prevent a renewed pandemic. Therefore, gold prices could rise over the short-run, but they aren’t likely to return to last year’s levels.
Dovish Fed policy may be helping to underpin prices, but Australia is trimming its bond purchases, New Zealand is cutting stimulus and planning to raise rates perhaps as early as September and Canada’s central bank hawkish, it’s going to be hard for gold bulls to mount a strong rally.
Gold prices are likely to remain rangebound over the near-term, but don’t be surprised if that range is relatively wide.
10-Year Treasury Yield Continues Slide, Falls to 1.17%.
U.S. Treasury yields fell on Tuesday morning, with the 10-year rate dipping to the 1.7% mark, extending a fall from the previous session amid COVID-19 variant fears. The yield on the benchmark 10-year Treasury note was down about 1 basis point to 1.7%. The yield on the 30-year Treasury bond slipped slightly to 1.731%.
The 10-year Treasury yield is trading at a five month low as investors grew concerned about the spread of COVID variants, as well as the effect of inflationary pressures on the economic recovery.
Once again, the direction of the gold market will be determined by the movement in the U.S. Dollar and Treasury yields.
Falling yields are providing the best support, and it appears that all it’s going to take is a little weakness in the U.S. Dollar to trigger an acceleration to the upside.
On the economic data front, the number of building permits issued in June, as well as the number of new housing construction projects started last month are set to be released at 12:30 GMT on Tuesday.