Gold inches lower as firm U.S. Treasury yields weigh
Gold edged down on Wednesday, as firm U.S. Treasury yields continued to pressure the non-yielding bullion, although prices held above the 8-1/2-month trough hit in the previous session.
Fundamentals
Spot gold eased 0.2% at $1,727.84 per ounce by 0052 GMT, having dropped to their lowest since June 15 at $1,706.70 on Tuesday. U.S. gold futures held steady at $1,734.10.
· Benchmark U.S. Treasury yields dipped for a fourth straight day after jumping to a one-year high last week, but held near 1.4% levels, making non-interest paying gold unattractive to investors.
· After a sharp sell-off last week, U.S. Treasuries have stabilized with bond market indicators and derivatives positioning pointing to near-term calm, but an improving economy could trigger another slide in their prices.
· U.S. Federal Reserve officials, facing a potential bout of inflation this spring in an economy turbocharged by vaccines and government spending, on Tuesday said they will nevertheless keep their easy money plans in place in hopes of speeding displaced Americans back to work.
· Investors now await developments in a $1.9 trillion U.S. stimulus bill passed by the House of Representatives last week, as the Senate begins debate over the legislation this week.
· Goldman raises outlook on commodities, sees 15% return over next 12 months
Goldman Sachs raised its outlook for the commodities sector over the next year as the economic recovery gains steam.
Strong fundamentals and supply constraints are boosting commodities as demand recovers, the bank said. The sector is a beneficiary of the “reflation trade,” which involves assets that are expected to fare well in a period of economic growth.
The firm recently raised its forecasts for oil, metal and grain and now expects the commodities sector to return 15.5% over the next 12 months. This is on top of the group’s 15% gain this year, making it the best-performing asset class by a “long shot,” Goldman said Monday.
· Gold Price Analysis: XAU/USD slides below $1730 level, erases Tuesday’s modest gains
Gold witnessed some selling during the early European session and refreshed daily lows, around the $1727 region in the last hour.
The precious metal failed to capitalize on the previous day's goodish rebound from multi-month lows, instead met with some fresh supply on Wednesday and was pressured by a combination of factors. The upbeat global economic outlook remained supportive of the underlying bullish tone in the financial market. This was evident from a fresh leg up in the equity markets, which undermined demand for the safe-haven XAU/USD.
Investors remain optimistic amid the impressive pace of COVID-19 vaccinations and the progress on US President Joe Biden's $1.9 trillion pandemic relief package. The reflation trade has been fueling expectations for a possible uptick in inflation and raised doubts that the Fed would retain ultra-low interest rates for a longer period. This was seen as another factor that exerted some pressure on the non-yielding yellow metal.
Meanwhile, a modest uptick in the US Treasury bond yields extended some support to the US dollar, which further contributed to the offered tone surrounding the dollar-denominated commodity. It will now be interesting to see if the XAU/USD is able to attract any buying at lower levels or the emergence of some fresh selling on Wednesday supports prospects for an extension of the recent/well-established bearish trend.
Market participants now look forward to the US economic docket, highlighting the release of the ADP report on private-sector employment and ISM Services PMI. This, along with the US bond yields, might influence the USD price dynamics. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities.
· Spot gold may retest support at $1,716
Only a break above $1,761 could signal the completion of the wave C. On the daily chart, gold is still testing the support at $1,723, the 76.4% projection level of a downward wave C from $1,959.01.
· Silver dipped 0.3% to $26.67 an ounce, while palladium climbed 0.6% at $2,376.50. Platinum shed 0.3% to $1,200.50.
Reference: CNBC, FXStreet, Brecorder
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