Gold futures are trading higher on Tuesday, basically mirroring the price action in U.S. Treasury yields and the U.S. Dollar. While yields are hovering near a five-week low, the dollar is trading at its lowest level in seven weeks against a basket of major currencies. Meanwhile, gold is testing a six-week high. This is causing some volatility in the gold market although the short-term bias is to the upside.
At 12:17 GMT, June Comex gold is trading $1771.80, up $1.20 or +0.07%.
Treasury Yields Little Changed as Investors Monitor Corporate Earnings
U.S. Treasury yields held steady on Tuesday as investors watched the latest corporate earnings. The yield on the benchmark 10-year Treasury note was little changed at 1.59%. The yield on the 30-year Treasury bond was flat at 2.28%. Treasury yields fell to 1.53% last week, despite strong economic data.
Due to the limited amount of major economic data this week, investors have shifted their focus to corporate earnings, as companies including streaming giant Netflix, as well as pharmaceuticals firm Johnson & Johnson and consumer goods firm Procter & Gamble, among those due to report on Tuesday.
The first-quarter earnings season got off to a strong start last week as the major U.S. banks reported. Financial earnings have topped expectations by 38%, while others in the S&P 500 have surprised to the upside by 12%, according to data from Credit Suisse.
Treasury investors are watching the earnings reports for signs of the impact of higher inflation. Expectations of another rise in inflation could put upside pressure on yields and that would be bearish for gold.
If traders continue to buy into the Fed’s notion that a jump in inflation will be transitory, then yields should continue to hover around current levels. This would support gold prices, but also cap gains.
It is possible that bond yields have stabilized as traders accept the Fed’s reiteration that the rise in inflation will be short-term. In other words, bond traders have trimmed off the excessive rise in yields and have become content at current levels. If this is the case then gold prices may have peaked and could become rangebound.