10 March 2021

Gold Shines Brighter as US Treasury Yields Retreat

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News shaping
the markets today

     

What’s happening: Gold recorded sharp gains on Tuesday, as US Treasury yields eased and the greenback came under pressure.

What happened: Gold prices climbed more than 2% on Tuesday, after tumbling to a nine-month low in the prior session.

Both the US dollar and Treasury yields responded to progress on the $1.9 trillion coronavirus relief bill, which lifted the allure of the yellow metal.

Why it matters: Although gold is generally viewed as a hedge against inflation from massive stimulus measures, rising Treasury yields this year have challenged that status for the precious metal.

10-year Treasury yields had surged to a more than one-year high, raising the opportunity cost of holding gold, which does not pay any interest.

“We see gold behaving like a tsunami, the water is going away at the moment due to severe pressure, but prices will come back with even more strength once these factors are gone," Commerzbank analyst Daniel Briesemann said in a note.

US Treasury yields eased yesterday, after the House of Representatives voted to advance President Joe Biden's $1.9 trillion stimulus and relief bill. This clears the way for the bill to be considered today, and markets look forward to it being passed.

Gold also received support from weakness in the US dollar against its major rivals on Tuesday. The USD/JPY declined to 108.47, while the EUR/USD climbed to 1.1901.

Holdings of SPDR Gold Trust, the world's biggest gold-backed exchange traded fund, had fallen to its weakest level since April 2020 on Monday. “The ETF flows are contributing to a greater impact on prices on the way down than on the way up. We forecast gold prices to reach $1,750/oz (in 2021), but given gold's recent volatility, this forecast has quite low conviction,” analysts at Societe Generale said.

Spot gold gained more than 2% yesterday, after declining to its lowest level since June 5 on Monday. US gold futures added $38.90, or 2.3%, to settle at $1,716.90 an ounce, while silver gained 91 cents to reach $26.18 an ounce.

What to watch: Markets await the US Federal Reserve’s two-day meeting scheduled for next week. The minutes may shed some light on the central bank’s current stance on monetary policy, amid rising inflation.

Traders will also keep an eye on bond yields, which are impacting price movements in precious metals like gold and silver. There may be some profit-taking today following gold’s strong rally on Tuesday. Gold futures fell by 0.4% in the Asian session.

Covid-19 remains a top concern for markets, with total global cases surging past 117.5 million.

The Markets Today

     

The Canadian dollar will be in focus today, ahead of the Bank of Canada’s interest rate decision.

Context: The Canadian dollar traded higher versus the greenback on Tuesday, with the easing of US Treasury yields lifting overall risk appetite.

Details: The safe-haven US dollar retreated from a 3.5 month high on Tuesday, as traders bought beaten-down tech stocks.

Canadian Treasury yields mirrored their US counterparts and staged a downturn too. Canada’s 10-year Treasury yield fell to around 1.46% after hitting its strongest level since January 2020 on Monday. The Canadian dollar was also supported by the upward price movement of crude oil, which is a major export of the country.

However, WTI crude oil pared gains and settled lower by 1.6% at $64.01 a barrel on Tuesday. The selloff followed crude oil hitting its strongest level since October 2018 on Monday, as OPEC+ (Organization of the Petroleum Exporting Countries and its allies) agreed to extend output cuts and markets remained bullish about a sharp recovery in energy demand.

The loonie has added around 0.9% since the beginning of 2020, just behind the British pound and the Norwegian crown in the list of G10 currencies.

The CAD/USD, which traded within a range of 1.2590 and 1.2685, settled higher at 1.2642 on Tuesday.

What to watch: Markets await the Bank of Canada’s interest rate decision. Analysts expect Canada’s central bank to raise rates next year with an improvement in the economy. For now, the central bank is widely expected to leave its interest rate unchanged at a record low of 0.25%.

Investors will also monitor covid-19 cases, with infections in Canada crossing 899,000.

Other Markets: European indices closed higher on Tuesday, with the FTSE 100, German DAX 30, French 40 and STOXX 600 up by 0.17%, 0.40%, 0.37% and 0.76%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Turkey’s unemployment rate, France’s industrial production, Italy’s producer prices, South Africa's SACCI business confidence index, Brazil’s industrial entrepreneur confidence index as well as the US MBA mortgage applications, inflation rate, EIA’s gasoline inventories, crude oil inventories, distillate inventories, and monthly budget statement.

 

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