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Gold slides to 9-month low as rising bond yields, dollar dim appeal

Gold slid more than 2% to its lowest in nearly nine months on Wednesday as elevated U.S. Treasury yields and a stronger dollar hammered the metal’s appeal.

Spot gold was down 1.2% at $1,717.67 per ounce, after falling to its lowest since June 2020 at $1,701.40 earlier in the session.

U.S. gold futures settled 1% down at $1,715.80.

·         “As real rates continue to rise, that’s challenging gold. The rates markets are also adding pressure on valuations for all asset classes, and as a result, gold is a casualty,” said TD Securities commodity strategist Daniel Ghali.

 

“The outlook for gold is tied really to whether or not we’ve reached that pivot point at the U.S. Federal Reserve in terms of whether they would address the steepening of the yield curve. But we’re still early in that process, so that has negative short-term implications on gold,” Ghali said.

 

·         Benchmark U.S. 10-year Treasury yields crept back towards a one-year peak reached last week, while the dollar rose.

 

·         The yield on the U.S. 10-year Treasury reached 1.47% as of Wednesday afternoon, almost 50 basis points higher than where the bond traded a month ago. Higher bond yields imply higher longer-term borrowing costs, raising questions on whether or not the Fed feels pressure to depress those yields.

 

·         Hopes of a quick economic rebound fuelled by a swift rollout of COVID-19 vaccines also prompted an outflow of safe-haven assets like gold from investors’ portfolios.

 

·         Progress on the $1.9 trillion U.S. stimulus bill has offered little respite, as higher yields have threatened gold’s appeal as an inflation hedge by increasing the opportunity cost of holding bullion.

 

 

·         Fed officials have reiterated that U.S. interest rates will remain low but cited a recent rise in real rates as a sign of growing optimism about an economic recovery.

 

·         “We anticipate recent headwinds to intensify again into the second half of this year, particularly as greater U.S. stimulus raises the prospect of an earlier-than-planned Fed rate hike,” UBS analysts wrote in a note.

 

·         U.S. data also showed that private payrolls rose by 117,000 jobs last month, according to the ADP National Employment Report, missing expectations.

 

 ·         Silver fell 1.8% to $26.28 an ounce and platinum slipped 2.1% to $1,178.79. Palladium rose 0.1% to $2,364.02.

 

·         Senate Democrats delay introduction of Biden's $1.9 trillion COVID-19 aid bill

The U.S. Senate delayed the start of debate on President Joe Biden’s $1.9 trillion COVID-19 relief bill until at least Thursday after reaching a deal to phase out $1,400 payments to higher-income Americans in a compromise with moderate Democratic senators.

 

·         Biden agrees to limit number of people who will get checks in Covid relief plan

President Joe Biden has backed a plan to cut the income caps for Americans to receive a direct payment as part of the $1.9 trillion coronavirus relief package set to pass in the coming days, a Democratic source said Wednesday.

 

·         U.S. readies $40 billion in loans to boost clean energy - official

 

·         U.S. House set to pass sweeping election bill, Senate prospects unclear

The Democratic-controlled U.S. House of Representatives on Wednesday is expected to pass its flagship election reform bill, which would update voting procedures and require states to turn over the task of redrawing congressional districts to independent commissions.

 

·         U.S. economy got off to modest start in 2021, Fed says

The U.S. economic recovery continued at a modest pace over the first weeks of this year, with businesses optimistic about the months to come and demand for housing “robust,” but the job market showing only slow improvement, the Federal Reserve reported on Wednesday.

“Economic activity expanded modestly from January to mid-February for most” of the Fed’s 12 regional districts, the U.S. central bank said in its latest “Beige Book” compendium of anecdotes about the economy. “Most businesses remain optimistic regarding the next 6-12 months as COVID-19 vaccines become more widely distributed.”

The Fed, however, reported that the labor market, which remains about 10 million jobs short of where it was before the start of the coronavirus pandemic in 2020, was not gaining as much traction as had been hoped.

·         Philadelphia Fed’s Harker: Don’t expect an interest rate hike ‘anytime in 2022’

Philadelphia Federal Reserve President Patrick Harker said Wednesday that he does not expect the Fed to raise interest rates in 2022, despite bond market bets that a rate hike could come next year.

 

CORONAVIRUS UPDATES:

Global daily statistics

COVID-19 infections are still rising in 65 countries.

Global Cases: 115.73M  (+426,724)
Global Deaths: 2.57M (+10,382)

 

No.1

U.S. Cases: 29.45M (+62,364)
U.S. Deaths: 531,459 (+2,137)

 

No. 2 – 10

India Cases: 11.15M (+17,425)
Brazil Cases: 10.72M (+74,376)
Russia Cases: 4.27M (+10,535)
U.K. Cases: 4.194M (+6,385)
France Cases: 3.81M (+26,788)
Spain Cases: 3.13M (+6,137)
Italy Cases: 2.97M (+20,884)
Turkey Cases: 2.73M (+11,520)
Germany Cases: 2.74M (+10,835)

 

No. 115
Thailand Cases: 26,108 (+35)
Thailand Deaths: 84

 

·         COVID Vaccination

So far 111 countries have begun vaccinating people for the coronavirus and have administered at least 268,501,000 doses of the vaccine.

 

·         U.S. President Joe Biden said the United States would have enough COVID-19 vaccines for every American adult by the end of May after Merck & Co agreed to make rival Johnson & Johnson’s inoculation.

 

·         Biden said he hoped that the United States would be “back to normal” at this time next year and potentially sooner.

 

  

·         India’s Covid-19 Vaccine Is Found Effective, Boosting National Efforts

Bharat Biotech reports 81% efficacy in large clinical trial, aiding vaccination drive and exports

 

·         ECB could tweak its pandemic stimulus as bond yields surge, Germany’s Weidmann says

The European Central Bank could tweak its coronavirus-related stimulus program, Germany’s central bank governor told CNBC Wednesday, with officials wary of recent increases in bond yields.

ECB members have talked about how rising government bond yields in the euro zone, in late February, are “unwelcome and must be resisted” — highlighting concerns that borrowing costs for European governments might rise and risk the economic recovery in the region.

The ECB has tried to contain borrowing costs in the wake of the pandemic, with the implementation of a government bond purchase program, known as PEPP. But the recent moves in the bond market could jeopardize those efforts and lead to more action from the Frankfurt-based institution.

 

·         UK hikes corporation tax to 25% as pandemic supports hits £407 billion

British Finance Minister Rishi Sunak announced Wednesday that U.K. corporation tax will increase to 25% in April 2023 as the government looks to restore public finances in the aftermath of the Covid-19 pandemic.

In his Budget statement Wednesday, Sunak said the changes would take effect after the Office for Budget Responsibility, a public body that provides independent forecasts, expects the economy to have returned to its pre-Covid level.

The OBR now expects the British economy to return to its pre-Covid level by the middle of 2022, with GDP growing by 4% in 2021 and 7.3% in 2022.

However, it also warned that the economy will still be 3% below its pre-pandemic trajectory in five years’ time.

 

·         Brazil GDP drops 4.1% in 2020, COVID-19 surge erodes rebound

Brazil’s economy shrank by 4.1% last year due to the coronavirus pandemic, its worst drop in decades, data showed on Wednesday, as a devastating second wave of COVID-19 threatens to cut short a stronger-than-expected rebound at the end of 2020.

 

·         Russia slams ‘hostile’ new U.S. sanctions and vows to retaliate

Moscow rejected new sanctions imposed on it by the U.S. late Tuesday, describing the restrictions led by President Joe Biden’s administration as “hostile.”

Russia’s Ministry of Foreign Affairs said last night that it would retaliate against what it said was a “counterproductive” act that aggravated bilateral relations further.

 

·         US forces: Rockets hit airbase in Iraq hosting U.S. troops

At least 10 rockets targeted a military base in western Iraq that hosts U.S.-led coalition troops on Wednesday, the coalition and the Iraqi military said. It was not immediately known if there were any casualties.

It was the first attack since the U.S. struck Iran-aligned militia targets along the Iraq-Syria border last week, stoking fears of a possible repeat of a series of tit-for-tat attacks that escalated last year, culminating in the U.S.-directed strike that killed Iranian Gen. Qassim Soleimani outside the Baghdad airport.

Wednesday’s attack comes two days before Pope Francis’ is scheduled to visit Iraq in a much anticipated trip that will include Baghdad, southern Iraq and in the northern city of Irbil.

After that attack, the Pentagon said the strike was a “proportionate military response” taken after consulting coalition partners.

Marotto said the Iraqi security forces were leading an investigation into the attack on Ain al-Asad.

·         U.S. won't 'shy away' from responding when necessary, Pentagon says after Iraq rocket attack

 

·         Myanmar army tells U.N. it is ready to weather sanctions, isolation, envoy says

Myanmar’s military says it is ready to withstand sanctions and isolation after its Feb. 1 coup, a top United Nations official said on Wednesday as she urged countries to “take very strong measures” to restore democracy in the Southeast Asian nation.

·         U.S. calls for release of AP journalist, five others charged in Myanmar

 

Reference: CNBC, Reuters, Yahoo Finance, Wall StreetJournal, Worldometers