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Gold futures posted modest gains for the second straight year on Monday as US Treasury bond yields strengthened but fell from the session highs.
Investors continued to respond to the Federal Reserve’s signal to cut billions in treasury and mortgage-related bond purchases as the U.S. economy rebounds from COVID-19.
“With the downward momentum appearing to be slowing, gold could see some calming in the short term, but the broader outlook is not great,” said Craig Erlam, senior market analyst at Oanda, in a market update. “Inflation is usually part of the bullish case for gold, but it works very much against it right now as it pushes central banks towards the exit doors on the incentives.”
Right now, “lower inflation and more central bank incentives appear to be more favorable to the yellow metal,” Erlam said.
December Gold GCZ21, + 0.03% GC00, + 0.03% rose 30 cents to hover at $ 1,752 an ounce, after rising 0.1% on Friday, causing gold bars to rise for the week led by 30 cents.
“Bearish elements,” like the Federal Reserve’s restrictive comments last week and expectations for rate hikes, were predominant, said Carlo Alberto De Casa, analyst at Kinesis Money. Right now, investors don’t seem too concerned about the risk of a knock-on effect from China’s real estate giant Evergrande’s 3,333 debt, + 8.05%, he told MarketWatch.
Meanwhile, silver rose 27 cents, or 1.2%, to $ 22.694 an ounce for September delivery SIZ21 after gold’s sister metal posted a 0.4% weekly gain on Friday.
De Casa said silver’s rebound has come after weeks of declines, but so far it is “not … a proper inversion” for prices.
Precious metals trading on Monday takes place on a backdrop of rising yields, with the benchmark 10-year government bond TMUBMUSD10Y rising 1.476% to 1.475%, but below highs of over 1.513% – the highest since early July. The longer-term 30-year government bond TMUBMUSD30Y reached highs of 1.991% above a psychologically significant level of 2%.
Higher interest rates on government bonds can compete with precious metals like gold and silver, which don’t offer a coupon.
Expectations of a reduction in Fed purchases of 80 billion in bond yields and prices are moving in the opposite direction.
However, the potential declines in gold bars and silver are likely to be limited by concerns over the outlook for Evergrande, which has been blamed for the tumultuous global markets last week. Reportedly, the company, which is roughly $ 300 billion in debt, failed to make important payments last week, and another chunk of its debt is about to become due.
Gold prices found some support after China’s Evergrande failed to make payment for offshore bonds, with additional payments due this week. “Because of the uncertainty in this situation,” wrote Naeem Aslam, AvaTrade’s chief market analyst, in a daily note.
However, 10-year government bond yields rose after the Fed indicated in November that it would begin rolling back its stimulus package. “An increase in government bond yields increases the opportunity cost of holding gold, which causes investors to switch to other forms of investment,” he said.
Currently, gold prices are “more linked to the inflation situation and the Fed’s monetary policy,” Aslam told MarketWatch on Monday, adding that he still expects gold prices to “consolidate” with the potential to move downward.
Gold prices modest support even as Monday’s data showed US durable goods orders rose 1.8% last month. Economists polled by the Wall Street Journal had forecast an increase of 0.6%. However, the increase in business orders last month was a bit exaggerated, with bookings up just under 0.2% if transport is not taken into account.
Among other metals traded on Comex, December copper HGZ21 climbed -0.01% nearly 0.1% to $ 4.29 a pound. October’s platinum PLV21, + 0.14% added 0.2% to $ 981.60 an ounce, while December’s palladium PAZ21, -0.01%, settled at $ 1,947.70 an ounce, down 0 , 2%.
The month of September “benefited the palladium bear camp with macroeconomic slowdowns in numbers, predictions of an endless chip shortage in the auto industry and threats of severe economic change in China from reform measures,” wrote analysts at Zaner in Monday’s Daily Commentary. “However, from a technical point of view, the palladium market is oversold, with the latest positioning report showing a new ‘record short’ in the [speculative] and fund categories. “