Bullish sentiment in gold is growing but focus remains on rising bond yields

Sentiment continues to improve in the gold market among both Wall Street analysts and Main Street investors. However, there is some concern that rising bond yields will cap gold at critical resistance below $1,750 in the near-term.

"Gold has had a nice bounce from its recent lows, but this just could be a short-term correction as prices appear to be contained as inflation still isn't a major story for investors," said Colin Cieszynski, chief market strategist at SIA Wealth Management.

Although Cieszynski is bearish on gold in the near-term, he added that gold has room to move higher in this corrective bounce.

This week, 13 analysts participated in the survey. A total of 6 voters, or 46%, called for gold prices to rise next week. Meanwhile, four voters, or 31%, said they see gold prices falling next week. Three analysts, or 23%, saw prices moving sideways.

Both sentiment and participation in the weekly gold survey are improving among retail investors. This week, 1698 votes were cast in online surveys. Among those, 1,101, or 65%, said they were bullish on gold next week. Another 355 participants, or 21%, said they were bearish, while 242 voters, or 14%, were neutral on the precious metal.

The increase in bullish sentiment comes as the gold market ends the week with modest gains but down from a one-week high. June gold futures last traded at $1,740 an ounce, up 1% from last Friday.

This week the gold market saw a brief push to $1,750 an ounce after the Federal Reserve left its ultra-loose monetary policies unchanged. The central bank also signaled that it doesn't expect to raise interest rates until at least 2024.

While the Federal Reserve is expected to remain extremely patient as the U.S. economy recovers, the gold market still has to deal with rising bond yields. Federal Reserve Chair Jerome Powell indicated that he wasn't concerned with the recent selloff in the bond market that has driven yields to a 13-month high above 1.7%.

For a lot of investors, higher bond yields, which are also supporting the U.S. dollar, are the biggest challenge for the gold market. However, gold's positive moves this week could indicate that the bond market is having less impact on the precious metal.

Adrian Day, president of Adrian Day Asset Management, said that he is bullish on gold as bond yields might be close to peaking.

"The bond vigilantes may not have been defeated by Fed Chair Jerome Powell's assertions that the Fed would remain easy, but eventually, through more words or by action, the Fed will stop the rise in long yields, and that will be positive for gold," he said.

Sean Lusk, co-director of commercial hedging at Walsh Trading, said that he is also looking for bond yields to find a natural ceiling as the U.S. central bank is expecting to keep interest rates at the zero-bound range for the next three years.

However, Lusk added that it is a little too early to get excited about gold as the market remains in a solid downtrend.

"With interest rates at zero, bond yields can only go so high," he said. "But I want to see gold hold at least $1,740 and see some weakness in the U.S. dollar before I start getting excited about gold."

Ole Hansen, head of commodity strategy at Saxo Bank, said that he is also neutral on gold in the near-term, but he wants to see a break above $1,765 an ounce before he starts to become bullish.

He added that gold is "trying to reestablish its reflation credentials, something that has been sorely missing for the past four months."

 

By Neils Christensen

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Traders continue to bid yields higher in spite of the Federal Reserve statement

“There’s something happening here, what it is ain’t exactly clear” – Stephen Stills

Immediately following the conclusion of the FOMC meeting yesterday, we saw gold stage a strong rally moving from roughly unchanged to close higher by double digits. Many analysts interpreted the gains as a direct result of the Federal Reserve statement, which included the most current “dot plot,” indicating that interest rates most likely will stay where they are through 2023.

However, in trading overseas, gold continued to climb higher as it opened in Australia on Thursday morning but then began selling under pressure as it moved into Hong Kong and London. The primary events that caused gold prices to weaken were dollar strength and higher yields in U.S, Treasury notes. In fact, the 10-year Treasury yield gained in excess of nine basis points, moving the current return to 1.73%. An absolute negative factor for gold placing bearish pressure on the metal.

This signals that even with the definitive tone of Chairman Powell once again conveying the Federal Reserve’s intent to keep interest rates where they are for a long time. While market participants looking at good economic data nonetheless continued to bid yields higher in anticipation of a rate hike disregarding the dot plot produced by the Federal Reserve as well as Jerome Powell statements during the press conference yesterday.

However, by the close of trading in New York gold basis, the most active April 2021 Comex contract gained significant ground. And although it closed well off of its high, which was $1754, it did gain $7.50, or 0.43%, and is currently fixed at $1734.60. Concurrently the uptick in gold occurred with extreme dollar strength, which was also up approximately .045%. That means if the dollar had been neutral today, we would have seen a gold rise by approximately $15.

Another interesting aspect was the negative correlation in terms of price change between spot or Forex gold and gold futures. Although spot gold is still slightly above the price of April’s futures contract, the net change on the day was a decline of nine dollars in spot compared to a positive gain of $7.50 in gold futures. According to the KGX (Kitco Gold Index), today’s decline of $9.00 is a combination of dollar strength and selling pressure. The vast majority of today’s change occurred because of dollar strength which accounted for $7.85 of the decline, with the remaining $1.15 resulting in spot gold at $1736.50.

At least for today, gold futures were able to overcome both dollar strength and higher yields on U.S. treasuries which rose to a 14-month high. Many analysts believe that unless the Fed intervenes to address the differential between short-term and long-term bonds and notes that the yield in the 10-year note could trade as high as 2%. That is only 0.02% off of the pre-pandemic yield, which was at 2.2%.

There is no doubt that analysts, market participants as well as traders are still gleaming through the statement released yesterday and working through the statements made by Chairman Powell, not only focusing on the words but the demeanor. Although he has been emphatic about keeping interest rates near zero for at least two years, it seems market sentiment does not agree with that assessment. There are those analysts that believe that if solid economic data continues to be forthcoming, it will force the hand of the Fed to raise rates sooner than they had anticipated.

This is contrary to the statements and determination of the Federal Reserve to not make the same mistakes that didn’t 2008 by raising rates too quickly. In the words of Chairman Powell, it will be the pandemic that dictates action by the Federal Reserve, and they will not act in a way that could hinder a full recovery in the fastest period of time.

 

By Gary Wagner

Contributing to kitco.com

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Gold and silver are mixed heading into the EU open

Gold and silver are trading mixed this morning with the yellow metal trading 0.29% down and silver moving 0.54% in the black. Gold has been impacted by some strength in the greenback today as the DXY trades 0.10% higher overnight. The US dollar is not up against all the major currencies with AUD, NZD and CAD all performing well.

After inheriting a positive close from the US, the Nikkei 225 (1.01%) and Shanghai Composite (0.51%) closed higher. Australia's ASX however struggled and fell 0.73% due to weaks in tech, financial, healthcare and property sectors.

The rest of the commodities complex struggled overnight as copper fell 1.32% and spot WTI dropped 0.67%.

Late during yesterday's session, the Fed kept rates and QE unchanged. There was no mention of SLR but the NY Fed RRP facility to $80 bln from $30 bln. Importantly, the dot plot still reflects no rate rises till the end of 2023. GDP and inflation forecasts were revised higher.

Overnight, Japanese media reported that the BOJ will widen its target yield band for 10 year JGBs to plus/minus 0.25%. This could be a reaction to the recent moves in the bond markets.

As the US and China meet in Alaska, US Sec State Blinken says China aggression poses challenge. China state TV says the country will not compromise with the US over sovereignty.

Australia February employment change rose a massive +88.7K (vs expected +30K) & the unemployment rate dropped to hit 5.8% (vs expected 6.3%).

Sticking with data, New Zealand GDP for Q4 2020 fell -1.0% q/q vs the expected reading of 0.2%.

Over in the Netherlands, PM Rutte looks likely to be returned for a fourth term but the results are not official yet.

Glencore have said that Mitsubishi are to acquire 30% stake in the Aurukun Bauxite project.

Looking ahead to the rest of the session highlights include CRBT, Norges Bank and BoE rate decisions, US initial jobless claims, Philly Fed data. We will also get comments from ECB's Lagarde, BoE's Bailey, ECB's Schnabel, ECB's de Guindos and ECB's McCaul.
 

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Gold and silver move marginally higher heading into the EU open

Gold has moved 0.20% higher again leading into the EU session and trades at $1734.65/oz. Silver is also up but only marginally as it flirts with the $26/oz figure.

After inheriting a mixed close for Wall Street bourses in the Asia Pac area moved lower. The Shanghai Composite (-0.03%), Nikkei 225 (-0.02%) and ASX (-0.47%) all closed in the red. Futures are pointing towards a negative cash open in Europe.

In FX markets, the US dollar was up against all its major counterparts but the pound. GBP/USD moved 0.08% higher while, AUD and NZD are both more than 0.10% lower against the greenback.

In the rest of the commodities complex, copper trades 0.88% higher and spot WTI is 0.76% in the black. All markets are slightly tentative ahead of today's FOMC meeting.

Looking at the news, the US have identified 24 China & HK officials who have reduced Hong Kong's autonomy and warn of sanctions. There are high-level talks taking place between US and Chinese officials in Alaska this week. A US official has said (on talks with China due this week) talks will be robust, frank. lastly, US Sec State Blinken says China acting more aggressively, repressively.

US House passed a two-month PPP extension in a 415-3 vote, The PP serves to support smaller business (mainly). There is still around USD93bn left in the kitty to disburse.

In company news, Honda is suspending some production at all US and Canadian plants due to supply issues. There have been some serious semi conductor shortages at the moment but it is unclear if this is the problem.

From central banks, RBA's Kent doesn't think monetary policy should or can control asset prices. He added he expects a rise in business failures as fiscal support is phased out.

ECB's Schnabel has said the EU's EUR 750bln recovery fund may not be large enough. He added what matters now is spending money as quickly as possible.

ECB's Kazimir believes the EU's fiscal response is lagging behind America's. He also said bond yields must reflect the fundamentals and the Euro-Area's yield moves are not dramatic.

The latest International Atomic Energy Agency report shows Iran edging closer to developing a nuclear weapon. This will not please the international community who may respond with sanctions.

France's PM says its time to think about a lockdown for the Paris area. Italy and France are now considering ending the suspension of the Oxford/AstraZeneca vaccine.

Looking ahead to the rest of the session highlights include the FOMC rate decision (statement), IEA reports, EZ CPI, Canadian CPI, DoE's, NZ GDP, Dutch general election and comments from ECB's Elderson and Fed's Powell.

 

By Rajan Dhall

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‘Geological’ inflation is here; how does this affect gold and silver price?

Guest(s): Randy Smallwood

We're living through a period of "geological inflation" which describes an environment of ever increasing demand for metals, but dwindling reserves, said Randy Smallwood, CEO of Wheaton Precious Metals.

"It is getting tougher and tougher to find assets, to find opportunities, to grow, to find exploration," Smallwood said.

 

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Is the worst behind us? Here’s what’s next for gold price

After losing more than $200 since the start of the year, gold may have finally found its bottom – Monday's 10-month low.

This is definitely the theme from this week's top 3 stories, with key figures in the gold space calling for higher prices to come.

Goehring & Rozencwajg Associates still calling for $15,000 dollar gold before this bull cycle is over, expecting a full turnaround in the second half of the year. Frustrated gold investors need to look at the gold-oil ratio when determining price reversals. This means that gold will stop falling when it becomes less expensive relative to oil. What needs to happen is for the ratio to move back to around 15 from the current levels in the upper 20s.

DoubleLine CEO Jeffrey Gundlach is no longer just neutral on gold, saying that the precious metal is done falling after hitting a 10-month low on Monday. Gold's fair value is at $1,761 an ounce, he said, which gives the precious metal some room to the upside.

Barrick Gold CEO Mark Bristow said that another spike in gold “is coming.” This headline comes from Bristow’s keynote presentation from the world’s largest mining conference PDAC, which was held virtually this year. Bristow said there is an "over-exuberance" in the financial markets right now with investors desperately piling into assets that don't have any real value. This kind of behavior led to a major crash in the past and it will happen again, he said, adding that there is another spike in the gold price coming.

 

By Anna Golubova

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Can gold price break free of Treasury markets? Analysts zero in on this trigger

Has gold found its bottom at this week's 10-month lows? Analysts are waiting to see if the precious metal can hold the $1,700 an ounce level and break free from the Treasury markets' chains.

After plummeting to the low of $1,675 on Monday, April Comex gold futures recovered above $1,730.

On Friday, gold was down on the day but was able to hold the $1,700 an ounce level in the face of higher Treasury yields. The bond market selloff continued after U.S. President Joe Biden signed his $1.9 trillion stimulus bill into law on Thursday. At the time of writing, April Comex gold futures were trading at $1,717.90, down 0.27% on the day.

"The 10-year yields are rising, and the curve is steepening up more. Even the short end of the curve has steepened up. This could continue as we see good economic numbers and talk about inflation. More risk appetite leads to yields shooting up, and it is not a good story for gold," TD Securities head of global strategy Bart Melek told Kitco News. "Precious metals are held hostage by Treasury markets."

 

All about yields

The U.S. 10-year Treasury yields surged above 1.6% overnight. "Yields are still in play. We thought $1,675 could be the low in gold. But it all depends on yields and if they continue to rise," said RJO Futures Senior commodities broker Daniel Pavilonis.

The $1.9 trillion stimulus package is also inflationary. "The market is expecting consumers to start going out and buying goods with that money," noted Phoenix Futures and Options LLC president Kevin Grady.

Once everyone will get vaccinated in the U.S., the yield curve will respond, and gold could have a hard time, Melek noted.

On top of that, markets are starting to price in more stimulus measures, including infrastructure spending.

"If money printing, higher yields, and foreign buyers selling our debt is the new M.O., there is more reason to buy emerging markets right now. The stimulus is ultimately a signal to the rest of the world that we are not in good shape, and we wave to pump out more money to bail out governments," Pavilonis said.

 

Eyes on the Fed next week

The current correlation between yields and gold is that as yields go up, gold comes down. This can change in the future, and once it does, gold can surge higher, Pavilonis pointed out.

"Eventually, that correlation will break. The Federal Reserve admitting that we are seeing inflation and we might have to raise rates sooner than thought would break that correlation. Or even just admitting that rising yields are a concern. That would be bullish for gold," he said.

The Fed has been largely ignoring the issue so far, which is why all eyes will be on the Fed Chair Jerome Powell next week as he holds his press conference after the central bank's interest rate announcement on Wednesday.

Even the European Central Bank (ECB) came out on Thursday saying that it is concerned about inflation and the printing of money, noted Pavilonis. The ECB said it would use its Pandemic Emergency Purchase Programme (PEPP) to halt any unwarranted rise in debt financing costs.

The ECB President Christine Lagarde "nonchalantly said that higher yields could translate into premature tightening for financing in all sectors in the economy," described Pavilonis. She also noted that the ECB wants to preserve favorable finance conditions with inflation looming down the road.

"If Fed came out and said something similar, that would be bullish for gold … The fact that yields are rising maybe shows the Fed is losing control," Pavilonis stated.

Melek said it is unlikely for Powell to make any significant new comments on the yield curve. "Powell will assure us that it is too early to talk about increasing interest rates. He was pretty ambiguous last time around when the yields moved up sharply, and the risk appetite wasn't hurt," he said.

Powell might attempt "to talk down yields," added Grady.

Also, the markets will get a look at the Fed's updated quarterly projections. And the ING economists are expecting an upward revision to the 2021 GDP.

"There will also be a lot of interest in the Fed Funds rate Dot Plots. Does the Fed 2023 Dot Plot median shift to a 25bp hike? Probably not, but the dollar would probably rally if it did. Yet a largely unchanged FOMC statement and a Jay Powell press conference repeating that the Fed has a long way to go before reducing stimulus should prevent the dollar running too far ahead," the economists said.

 

Price levels

It is critical to see how gold behaves next week around the $1,700 an ounce level, according to the analysts. A move towards $1,760 would signal a possible rally to come, while a drop below $1,670 could open the door to $1,600 an ounce, they said.

"Gold may be bouncing around here and consolidating for a move higher; need to get above $1,760 to give confirmation," said Pavilonis. "The $1,670 level is support. If that shakes out, we could be looking at $1,600."

Gold will need to hold $1,700, said LaSalle Futures Group senior market strategist Charlie Nedoss. "I want to see what it does at $1,700," he said.

Melek added that short-covering is very likely in the short-term. But if the U.S. dollar and the yields keep rising, gold could re-test $1,660 an ounce next week.

Grady pointed out that it is dangerous to be short-gold right now, while, at the same time, it is not beneficial to be long-gold either. "To be short gold in the market that has so much money printing and stimulus is dangerous. But every time gold goes up, it is being sold. Traders want to look or trend and ride that trend," he said. "That is why I am neutral."

 

Other data to watch

There will also be a slate of fresh economic data to monitor next week. The data releases will kick off with N.Y. Empire State manufacturing index on Monday and the U.S. retail sales and industrial production on Tuesday.

 

The U.S. housing starts and building permits are due out on Wednesday, followed by the Philadelphia Fed manufacturing index and jobless claims on Thursday.

 

By Anna Golubova

For Kitco News

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Gold and silver had mixed results in trading yesterday

After two days of substantial gains, we see both gold and silver consolidating at current pricing. This factor bodes well for the assumption that both precious metals, after sustaining an approximately 61.8% Fibonacci retracement from the highs achieved in August of last year, as potentially an area to find support and form a bottom.

Even with the muted price change from yesterday, if the recent gains were a so-called "one and done" scenario, we most likely would have seen a retracement from the gains achieved on Tuesday and Wednesday.

Gold pricing was definitely influenced by a weaker U.S. dollar and fractionally lower yields on U.S. bonds. While this also benefited silver pricing, it was the industrial component that added more fuel to the fire, with U.S. equities once again in rally mode.

However, I believe the recent round of government spending both in the United States and abroad will devalue the currencies of the eurozone and the United States. On Wednesday, Congress approved President Biden's $1.9 trillion fiscal stimulus aid package. In a vote of 220 to 211 the House passed the president's "American Rescue Act." The Senate passed the same resolution in a vote of 50 to 49, with a vote that followed party lines making it a genuinely partisan bill.

According to the New York Times, this financial aid package is "one of the largest injections of federal aid since the Great Depression. It would provide another round of direct payments for Americans, an extension of federal jobless benefits and billions of dollars to distribute coronavirus vaccines and provide relief for schools, states, tribal governments and small businesses struggling during the pandemic."

President Biden has already signed the bill into law this afternoon. Originally it was announced that he would sign the aid package on Friday. However, the president, along with his advisers acutely aware that those who most need this injection of fiscal stimulus (low and middle-income Americans) are living week to week, meaning that the next round of fiscal stimulus checks cannot come soon enough. In the case of those unemployed, those benefits are set to run out this weekend. In other words, time is of the essence, and the White House is aware of this.

Just before signing the bill in the oval office, the president said, "This historic legislation is about rebuilding the backbone of this country and giving people in this nation, working people, middle-class folks, people who built the country, a fighting chance. That's what the essence of it is."

The president will address the nation tonight in which he will educate the public as to the benefits which will be forthcoming through the relief package. Addressing the nation, he said this conference would "talk about what we been through as a nation this past year. But more importantly, I'm going to talk about what comes next. I'm going to launch the next phase of the Covid response and explain what we will do as a government and what we will ask of the American people."

While there may be a partisan divide as to how this $1.9 trillion has been allocated, there is a bipartisan acknowledgment that there are still nearly 9 million individuals that are unemployed and millions of Americans that cannot pay their rent or financially function in any solvent manner.

That being said, with the acknowledgment that aid is greatly needed, the undeniable fact is that

it increases our national that by almost $2 trillion. When this capital expenditure is added to the $4 trillion spent last year, one has to recognize that there will be some level of economic fallout. Never since the Great Depression

have we allocated such a large amount of capital to reignite the economy and aid those Americans in need. While it most certainly will pressure the U.S. dollar lower, the real question becomes how many years will it take to overcome the increased national debt.

It is for that reason, on a fundamental basis, that many investors and major institutional players will take a fresh look at the safe-haven asset class. The only caveat to that would be rising yields that would compete with those investment dollars. Also, besides these safe-havens, Bitcoin is also in direct competition with both not as a risk-off but rather as a way to overcome the inflationary pressures all of this spending will certainly provide.
 

By Gary Wagner

Contributing to kitco.com

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Gold and silver are once again higher leading into the EU open

Gold and silver are heading into the EU session both trading higher. The yellow metal is 0.61% in the black trading at around $1736/oz while silver is 0.58% higher at $26.34/oz.

Overnight the risk sentiment in equities markets was pretty good as the Nikkei 225 (0.60%) and Shanghai Composite (2.36%) both traded higher but the ASX closed flat. This move came off the back of a fresh record high for the Dow last night.

The best-performing currency overnight was AUD as AUD/USD traded 0.46% higher and AUD/JPY moved 0.72% in the black. The Japanese yen has been underperforming against most of its major counterparts for a while now. In the rest of the commodities complex, copper trades 2.05% higher along with WTI which trades just above flat.

US official says US President Biden is still seeking to make the child tax credit permanent. This comes after the house of representatives passed Bidens $1.9trl stimulus package yesterday. He is now set to sign the deal on Friday.

Sticking with the stimulus bill, US Treasury Secretary Yellen said today was a pivotal day for the US economy (after the house approved the deal).

In terms of what comes next for the President, there are reports suggesting there will be a "China-related" spending bill which could include a focus on semi-conductor, 5G etc. Also according to US media reports Biden is looking to seek US bank buy is for infrastructure spending projects which could be valued at around $2.5trl.

On the geopolitical front, US Sec State Blinken says will take action against 'egregious' violations of human rights in Hong Kong.

Top US and Chinese officials are set to meet for a two-day summit in Alaska next week. Topics to discuss include climate change, COVID-19 and both nations stance on Hong Kong.

On the coronavirus front, there have been Asia travel bubble talks and it seems that Taiwan, Singapore, Japan, South Korea, and Vietnam are looking to have pathways between them.

The Governor of Taiwan's central bank says the US may list Taiwan as a currency manipulator. This is interesting as SNB's Jordan spoke about the $100bln used to defend the Swiss Franc.

In Australia, there are warnings that there could be around 300,000 lost jobs once JobKeeper (wage subsidy) support ends. In the UK there could be the same problem once Furlough stops.

In Europe, the ECB has drafted a report that says they are not expecting a massive rise in inflation and they also assume savings will not fuel a spending boom (sources).

Looking ahead to the rest of the session highlights include ECB policy announcement US ICJ, OPEC monthly report and comments from BoC Gov Council Member Schembri and ECB's Lagarde.
 

By Rajan Dhall

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