Gold futures are trading lower on Wednesday, pressured by a rise in Treasury yields and increased demand for higher risk assets. The market gave back earlier gains despite another plunge in the U.S. Dollar against a basket of major currencies and U.S. report showing a record 67,400 single-day spike of new coronavirus cases.
At 12:55 GMT, August Comex gold is trading $1809.80, down $3.60 or -0.20%.
Today’s price action confirms what I’ve been saying all along that the direction of gold is being controlled by the movement in Treasury yields and not the number of coronavirus cases. The jump in COVID-19 infections will only become relevant if it creates a response by the Fed or the government that drives Treasury yields down.
Treasury Yields Move Higher Ahead of Fed’s Beige Book Report
U.S. government debt prices were lower Wednesday morning as market sentiment turned positive on vaccine hopes. I guess you can say that the rise in COVID-19 represents the “now”, while the vaccine represents a better “future”. Investors are betting that the economy will improve in the future.
Wednesday’s trading has been tracking news that Moderna, a biotech firm, said that its potential vaccine to prevent COVID-19 delivered a solid immune response in an early-stage human trial among all 45 patients.
As I mentioned earlier, the U.S. reported a record 67,400 single-day spike of new coronavirus cases. Additionally, the country has reported an average of about 62,210 new cases per day over the past seven days, more than triple the average just a month ago.
Texas, California and Florida accounted for a total of 31,847 new cases on Tuesday, nearly half of all new cases reported across the country.
President Trump on Tuesday again attributed the increase in cases to ramped up testing, while Trump’s medical advisors, including Director of the National Institute of Allergy and Infectious Diseases Dr. Anthony Fauci, have said the recent surge in cases is a sign of an expanding outbreak, not the increased testing.
Furthermore, both the CDC and the World Health Organization (WHO) now recommend that people wear masks as a way to slow the spread of the virus. The WHO also said the United States could get coronavirus under control in one to two months if everyone wears a mask, but we know that that isn’t going to happen.
Gold traders continue to bet the rise in coronavirus cases will eventually lead to enough economic destruction to warrant fresh fiscal and monetary stimulus, but the economic reports continue to fly in the face of this assessment just enough to prevent an upside breakout.
However, if optimism over the economy continues to drive stock prices higher as well as interest rates then gold is going to have a hard time holding on to gains over the near-term. Longer-term, there will always be a bid as long as all the government and Fed money remains afloat, but over the short-run, the market appears to be a little vulnerable.
For a look at all of today’s economic events, check out our economic calendar.