Gold futures closed higher on Friday bolstered by a weaker U.S. Dollar. Gains were likely capped by firm U.S. Treasury yields. This helped produce an inside trading range that tends to indicate investor indecision and impending volatility. Fundamentally, investors continued to dwell on the spread of the Delta variant of the coronavirus and its possible impact on the global economic recovery.
If the spread of the variant continues to escalate then some central banks like the Fed, RBA and RBNZ may decide to delay plans to tighten policy, which would hold down interest rates longer than expected. This would be supportive for gold prices.
On Friday, August Comex gold settled at $1810.60, up $10.40 or +0.58%.
Gold traders have also shifted their concerns over inflation to new worries that the Fed is targeting full employment before considering a rate hike. This is also a potentially bullish development for gold prices.
In other news, gold demand in India and China slowed last week, dampened by higher domestic rates. Meanwhile, Reuters reported that a British regulator said banks clearing gold trades in top hub London could apply for an exemption from tighter capital rules due in January, removing what some said was a threat to the functioning of the market.
US Dollar Edges Lower as Risk Appetite Returns
The dollar edged lower on Friday, along with the Japanese Yen, as riskier currencies were favored, with the rally in U.S. Treasuries running out of steam and global stock markets steadying, Reuters reported.
Some recent soft U.S. data, along with a surge in COVID-19 cases in many parts of the world, has fueled concerns that the global economic recovery was running out of steam, leading to an eight-day streak of declines for the 10-year Treasury yield that ended on Friday.
The rise in yields supported riskier assets and currencies, with global stock markets rising and the commodity-linked Australian and New Zealand dollars catching a bid.
Treasury Yields Bounce, Easing Worries about a Global Economic Slowdown
U.S. Treasury yields bounced on Friday, easing some concerns about a global economic slowdown brought about in part of the surprising decline in yields in recent months.
The yield on the benchmark 10-year Treasury note climbed 7 basis points to 1.358%. The yield on the 30-year Treasury bond advanced by 7 basis points to 1.988%.
The direction of Treasury yields and the U.S. Dollar should continue to dictate the movement in the gold market over the short-run. With investors shifting their focus to the U.S. labor market and away from inflation, we may not see any big move this week until Thursday’s weekly unemployment claims report. Looking at the bigger picture, gold could also become rangebound until the July Non-Farm Payrolls report is released on the first Friday in August.