By Myra P. Saefong and William Watts
Gold futures lost ground Wednesday, holding above the $1,800-an-ounce threshold but settling at their lowest in nearly two weeks, as U.S. Treasury yields continued to bounce off five-month lows, dulling demand for the precious metal.
“Gold remains under the mercy of a stronger dollar, while a rebound in U.S. Treasury yields has dampened the allure of the zero-yielding metal,” Lukman Otunuga, manager, market analysis at FXTM, told MarketWatch.
Although prices dipped “marginally below” the psychological $1,800 level during Wednesday’s trading, “gold could still draw support amid a global surge in coronavirus cases,” he said.
“Should prices linger below $1,800 for too long, bears may steal back control with the next key level of interest found at $1,760,” he said, but if prices can push back above $1,800, “gold has the potential to retest $1,825, which is just below the 200-day simple moving average.”
Gold for August delivery /zigman2/quotes/210034565/delayed GC00 +0.63% fell $8, or 0.4%, to settle at $1,803.40 an ounce on Comex after touching a low at $1,794.30. The settlement was the lowest for a most-active contract since July 8, FactSet data show.
September silver /zigman2/quotes/214906503/delayed SIU21 +1.68% tacked on 26 cents, or 1%, to settle at nearly $25.26 an ounce, after falling 0.6% on Tuesday.
“Gold prices are unwilling to stay below the 1,800 price level as bulls are trying their best to win this battle,” said Naeem Aslam, chief market analyst at AvaTrade in a market update.
“The dollar strength is the major story here, and traders believe that next week the [Federal Reserve] may be announcing some hawkish commentary about the future path of their monetary policy,” he said.
The central bank will announce it’s decision on monetary policy on July 28. So far this week, the ICE U.S. Dollar Index /zigman2/quotes/210598269/delayed DXY -0.06% has traded around 0.2% higher.
“Despite the fact that the market could hear some hawkish commentary from the Fed, the gold price is far from its recent low of $1,685, which is “very encouraging for the bulls,” said Aslam. Gold futures were last around that level in late March.
“During the upcoming hawkish monetary policy period, gold prices may not see extensive sell [off] like the one the gold price experienced back in 2012 when the Fed started to wind down their monetary policy,” he said.
Meanwhile, the yield on the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.84% , which dipped to a five-month low on Monday, continued to rebound, rising 7.3 basis points to 1.279% in Wednesday dealings. Higher bond yields raise the opportunity cost of holding assets that don’t offer yields.
However, if bond yields were to weaken further, “this should prevent gold form a sharper fall,” said Fawad Razaqzada, market analyst at ThinkMarkets, suggesting that the European Central Bank, which meets on Thursday, could “provide that trigger.”
Also on Comex Wednesday, September copper /zigman2/quotes/210058817/delayed HGU21 -0.15% tacked on 0.2% to $4.27 a pound. October platinum /zigman2/quotes/219800830/delayed PLV21 +5.86% rose nearly 1% to $1,075.30 an ounce and September palladium /zigman2/quotes/219250747/delayed PAU21 +1.06% settled at $2,654.90 an ounce, up almost 0.6%.
Meanwhile, Stephen Flood, director of bullion services at GoldCore, said the delta variant of the coronavirus “continues to undermine the equity markets recovery narrative and is causing investor jitters across roller coasting markets.”
He expects to see a “major reassessment of the equity risk premium trade in favor of “the safe haven metals such as gold and silver in the last quarter [of this year], where gold should comfortably ascend above $2,000 or more and silver above $30.”