MTS Help Center

After peaking at $1814 in the Asian trading, gold price remained heavy for the most part of Wednesday, falling as low as $1795 before recapturing $1800 on closing. The two-way price action could be traced back to the dynamics in the US Treasury yields, reflective of the changes in the risk sentiment. In the early part of Wednesday’s trading, Delta covid variant concerns hurt the Asian investors’ sentiment, in turn, driving the risk-off flows into the US bonds and the dollar at the expense of the yields. The greenback hit fresh three-month highs above 93.00 vs. its main peers. However, the dollar corrected sharply later in the day amid a major turnaround in the risk sentiment. Strong earnings reports lifted the appetite for riskier assets and eased off pressure on the US rates, knocking off gold price lower. Towards the closing, the US stimulus optimism helped gold to regain the $1800 mark.

With the Treasury yields holding at higher levels this Thursday, despite the US Senate infrastructure bill vote deferred to Monday, gold price is licking its wound around $1800. The US dollar remains broadly subdued, which caps gold’s downside for now. Gold bears are biding time ahead of the European Central Bank’s (ECB) monetary policy decision, in order to extend the downside. After its strategy review two weeks ago, the ECB is likely to make no changes to its monetary policy, although any hints on a potential QE expansion amid the recent covid resurgence could save the day for gold bulls. At the same time, if the dovish outcome lifts the global sentiment, then the downside would remain more compelling for gold price. Markets will also look forward to the US weekly jobless claims and housing data for some trading impetus.

 

Having bounced off critical support around $1795 on Wednesday, gold bears are back at testing the bids there. The 21-Daily Moving Average (DMA) and 100-DMA coincide at that demand zone.

 

A daily closing below that level is critical to extending the recent downtrend towards the July 12 low of $1792.

 

If the selling pressure intensifies, then a drop towards the July lows of $1767 cannot be ruled out.

 

The 14-day Relative Strength Index (RSI) edges lower below the 50.00 level, allowing more room for declines.

 

On the flip side, should the bulls manage to defend the abovementioned strong support, buyers would then aim for a retest of Wednesday’s high.

 

U.S. Treasury yields fell slightly on Thursday morning, ahead of the release of weekly jobless claims data.

The yield on the benchmark 10-year Treasury note dipped less than 1 basis point to 1.275% at 3:30 a.m. ET. The yield on the 30-year Treasury bond fell less than a basis point to 1.924%. Yields move inversely to prices and 1 basis point equals 0.01 percentage points.

The U.S. Department of Labor is due to release the number of jobless claims filed last week at 8:30 a.m. ET on Thursday. Economists polled by Dow Jones are expecting the number of first-time filings to be 350,000 for the week ended July 17, down from the prior reading of 360,000.

Existing home sales data for the U.S. in June is due to come out at 10 a.m. ET.

·         Warning signs for global recovery as Delta dims outlook

A drubbing in world equity markets and a huge flight to safety into U.S. Treasuries this week suggests investors now doubt that a much-anticipated return to post-COVID normality is feasible any time soon.

Data from the United States and China, which account for more than half of world growth, suggests a slowdown in the recent blistering pace of the global economy alongside rising prices for all manner of goods and raw materials.

 

Coinciding with a resurgence in the Delta variant of COVID-19, markets may be sending alarm signals about the global economic outlook, Deutsche Bank chief FX strategist George Saravelos told clients.

 

DOLLAR REFUGE

Data on hedge funds' weekly currency positioning is the closest available real-time indicator of investors' thinking about the $6.6 trillion a day foreign exchange markets.

 

LESS VALUE

Defensive stocks such as utilities are back in favour too. A basket of value stocks compiled by MSCI is testing its lowest levels for this year against defensive peers, having risen 11% in the first six months of 2021.

 

FALLING YIELDS

Early this year, the dollar's trajectory was determined by the interest rate differentials enjoyed by U.S. debt over its rivals, with correlations peaking in May.

While real or inflation-adjusted U.S. yields are still higher than their German counterparts, the drop in nominal U.S. yields below 1.2% this week has raised concern over the global growth outlook.

Ulrich Leuchtmann, head of FX at Commerzbank, said that if global production and consumption did not return to 2019 levels soon, then a permanently lower GDP path has to be assumed. This is reflected to some extent in bond markets.

 

INVESTORS GLOOMIER?

Investor sentiment has become more cautious, according to weekly polls by the American Association of Individual Investors. BlackRock, the world's biggest investment manager, cut U.S. equities to neutral in its mid-year outlook.

 

COMMODITY WORRIES

Popular reflation trades in the commodity markets have also gone into reverse. A ratio of gold/copper prices has fallen 10% after rising to more than 6-1/2 year highs in May.