By Myra P. Saefong and Mark DeCambre
Gold futures ended with a modest loss on Tuesday, pulling back a day after a rally in prices to their highest in roughly a week, as investors weighed the first day of monetary-policy testimony from Federal Reserve Chairman Jerome Powell.
The slight uptick in the U.S. dollar acted as a “modest headwind” on precious metals in Tuesday’s session, but there was a more notable correlation between gold and Treasury note yields, said Tyler Richey, co-editor at Sevens Report Research. Gold can be particularly sensitive to moves in the U.S. dollar, and a rise in government debt yields can undercut appetite for precious metals.
“Treasury yields came off the morning highs as Powell reiterated a very dovish and patient policy stance, which saw gold stabilize and ultimately grind back” from bigger losses, Richey told MarketWatch.
During the first of two days of congressional testimony, Powell told the Senate Banking Committee that there are signs that the economy is on the mend from the pandemic, but the Federal Reserve is likely to keep its easy policy in place for some time.
Against that backdrop, April gold /zigman2/quotes/210034565/delayed GC00 +0.89% /zigman2/quotes/212606756/delayed GCJ21 +0.95% fell by $2.50, or 0.1%, to settle at $1,805.90 an ounce after touching a high of $1,815.20 — the highest intraday level for a most-active contract since Feb. 16, FactSet data show.
The move followed a surge of 1.7% Monday to mark the metal’s loftiest settlement since Feb. 12 and the biggest single-session dollar and percentage rise since early January.
Meanwhile, March silver /zigman2/quotes/210315219/delayed SI00 +3.10% shed 40 cents, or 1.4%, to end at $27.688 an ounce, following a surge Monday of over 3% to the highest finish since Feb. 1.
Powell has previously emphasized the central bank’s determination to hold off on pulling back on monetary stimulus until inflation has surpassed its target of 2%.
Among the notable takeaways from Powell Tuesday, was his reiteration that the economy is a long way from the Fed’s employment and inflation goals, and that overall, on a 12-month basis, inflation remains below the Fed’s 2% longer-run objective, said Richey.
“Those two statements suggest that the Fed is neither worried about inflation right now, despite the recently less-orderly rise in interest rates, nor confident that the labor market is going to recover quickly,” said Richey. “On balance that means very easy policy for the foreseeable future.”
“Typically, day one before the Senate covers most of the major topics in these Fed updates, but there may be something more market-moving” in Powell’s testimony Wednesday, he said.
The 10-year Treasury note yield BX:TMUBMUSD10Y has been relatively steady at 1.359%, but government bond yields have been resurgent on the back of higher growth expectations driven by falling COVID-19 case counts, vaccine rollouts and anticipation of another fiscal relief program.
Gold has drawn bids in this environment because investors are worried about the impact a rapid rise of yields will have on appetite for assets perceived as risky, notably those in the highflying technology sector which tend to be more vulnerable to higher borrowing costs amid what many consider lofty valuations.
Powell’s prepared testimony Tuesday “was overwhelmingly dovish,” said Paul Ashworth, chief U.S. economist at Capital Economics, in a note Tuesday.
Prices for gold pared some losses in the immediate wake of data Tuesday that showed Americans grew more confident in the economy in February.
The index of consumer confidence rose to a three-month high of 91.3 in February from a reading of 88.9 in January, the Conference Board said Tuesday.
Meanwhile, March copper added 0.9% to $4.1785 a pound, holding ground at the highest prices since 2011.
April platinum /zigman2/quotes/216224626/delayed PLJ21 -1.25% shed 3.3% to $1,239.70 an ounce and March palladium lost 2.4% to $2,335.10 an ounce.