By Myra P. Saefong and Mark DeCambre
Gold futures tallied a third straight decline on Thursday as government bond yields extended their climb to the highest level in a year, raising the opportunity cost of owning nonyielding gold over sovereign debt.
A rise in bond yields, with the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +1.21% advancing to above a psychological threshold at around 1.5%, has put pressure on stocks and gold, forcing investors to reassess the relative value of owning either asset against the backdrop of richer rates from risk-free Treasurys.
“The faster the global bond yields rise, the sharper the fall is for gold,” said Edward Moya, senior market analyst at Oanda, in a market update. “The surge in Treasury yields mostly likely can’t keep this pace up so gold should start to stabilize soon,” but if the bond selloff continues, and gold breaks critical support at the $1,750 level, “technical selling could see this get another 5% uglier.”
Gold for April delivery /zigman2/quotes/212606756/delayed GCJ21 -0.67% /zigman2/quotes/210034565/delayed GC00 -0.60% fell by $22.50, or nearly 1.3%, to settle at $1,775.40 an ounce, following losses in each of the past two sessions. On Wednesday, prices marked the first finish below $1,800 since Friday.
Meanwhile, the most-active May silver contract /zigman2/quotes/213039318/delayed SIK21 +0.13% /zigman2/quotes/210315219/delayed SI00 +0.13% lost 24 cents, or 0.9%, to $27.685 an ounce, following a 0.7% rise for the contract in the previous session.
Two days of congressional testimony from Federal Reserve Chairman Jerome Powell, as part of regular semiannual hearings in Washington, helped to placate markets on Wednesday.
Powell told the House Financial Services Committee Wednesday that the Fed will maintain ultralow interest rates and continue hefty asset purchases until “substantial further progress has been made” toward its employment and inflation goals, echoing what he said on Tuesday in front of the Senate Banking Committee.
Powell emphasized that the central bank’s efforts to get the economy back to normal from the COVID-19 pandemic are “likely to take some time” to achieve.
“The gold price is clearly not benefiting from the Fed narrative, which is that loose monetary policy is here to stay for some time,” wrote Naeem Aslam, chief market analyst at AvaTrade, in a daily note.
“Investors believe that this is risk-on time, and they really do not see any reason why they need to hedge their risk if the Fed is holding their back, which has weakened the gold price’s strength,” he said.
Progress on vaccination rollouts and boosters for virulent variants of the deadly disease are also helping to support a bullish outlook for the economy in the second half of 2021, which adds to pressure on bond prices, which fall as yields rise.
U.S. data Thursday showed that orders for durable goods —products meant to last at least three years — rose 3.4% in January, the biggest increase in six months. The U.S. economy, meanwhile, expanded at an annual 4.1% pace in the fourth quarter, instead of 4%.
Contributing further pressure to gold is investor interest in bitcoin, Chintan Karnani, chief market analyst at Insignia Consultants, told MarketWatch. “A lot of short-term gold investors have invested in…and continue to invest in cryptocurrencies.”
Looking ahead, U.S. February nonfarm payrolls, due out March 5, and other job numbers will be on traders’ minds, he said, adding that he expects to see a short-covering rally in gold prices next week before the release of the monthly jobs report.
“Inflation has been very high in February all over the world,” said Karnani. “I expect traders to focus on inflation very soon. High inflation implies rising gold price.”
Among other metals traded on Comex, May copper /zigman2/quotes/210056589/delayed HGK21 +2.28% also declined by 0.9% to $4.2635 a pound, easing back after climbing Wednesday to levels not seen since 2011 . Most-active copper futures are on track for a nearly 20% monthly gain, according to Dow Jones Market Data.
April platinum /zigman2/quotes/216224626/delayed PLJ21 +2.31% shed 2.1% to $1,231.50 an ounce, while June palladium /zigman2/quotes/217647915/delayed PAM21 -0.66% settled at $2,414.80 an ounce, down 0.7%.