Firming U.S. Treasury yields are keeping pressure on gold futures prices on Wednesday. Despite yesterday’s promising technical chart pattern, the market is currently poised to post its sixth lower session in seven. The catalysts behind the rise in Treasury yields are increasing expectations for further fiscal stimulus.
At 11:42 GMT, April Comex gold futures are trading $1720.10, down $13.50 or -0.78%.
Traders are also saying that as long as the Fed allows Treasury yields to remain firm or move higher, gold is going to have a hard time mounting a meaningful rally.
Last week, Federal Reserve Chairman Jerome Powell reiterated that the Fed will keep their easy money plans in place even in the face of a potential bout of inflation this spring in an economy boosted by vaccines and government spending.
That being said, investors are keeping a close eye on the progress of President Joe Biden’s $1.9 trillion U.S. stimulus package, ahead of the Senate’s debate over the legislation this week. Like I said yesterday, bullish gold traders can only hope for a smaller package with Republicans trimming some of the fat from the bill because it is very likely to pass quickly.
Gold used to be viewed as a hedge against inflation, but that seems to be old school thinking since it’s a lot easier to buy and sell government bonds. Relatively higher yields lately have threatened gold’s role in the financial markets since they increase the opportunity cost of holding the asset, which pays no interest or dividend. Furthermore, investors are looking to hold performing assets not status symbols.
Benchmark Treasury yields are currently holding near 1.4%, down from last week’s one-year high at 1.6%. But that can change quickly especially with the U.S. scheduled to announce Non-Farm Payrolls data on Friday. Yields can jump higher and gold could get crushed if the numbers come in well above expectations.
Today’s ADP Non-Farm Employment Change Report could move the gold market lower if the number comes in well above the 202K forecast. Gold could see a modest gain if the number misses to the downside and if yields move lower on the news.
Over the long-run, however, gold prices are likely to remain capped as long as the Fed stays the course. Gold could see a price spike, however, if the Fed intervenes in the bond market in an effort to gain control over yields.
An out of control surge in inflation because of the massive amount of government spending could also fuel a jump in gold prices.
For a look at all of today’s economic events, check out our economic calendar.