Gold futures are trading lower on Monday as a surge in global coronavirus cases is driving investors to seek shelter in safe-haven US Treasuries and the US dollar, proving once again that gold is no longer being perceived as a safe-haven asset, no matter what the old school brokers want to tell us. The price action suggests gold is being thought of as a risky investment albeit, one that doesn’t pay interest or a dividend.
Over the early part of the month, gold’s price action was driven by worries about inflation and Federal Reserve policy, but Monday’s early price action suggests this week’s movement will be driven by concerns over risk.
Yesterday, gold was pressured by a rising dollar, which is reducing demand for the dollar-denominated asset, but losses are likely being limited by lower Treasury yields.
Treasury Yields Start the Week Lower, 10-Year Treasury Around 1.27%
US Treasury yields dipped on Monday morning, with the 10-year falling to around 1.27%. The yield on the benchmark 10-year Treasury note fell 2 basis points to 1.275%. The yield on the 30-year Treasury bond dipped 2 basis points to 1.905%.
Investors are moving into Treasuries for protection in response to early weakness in US stock indexes after the major averages posted their first negative week in four.
Inflation fears are weighing on stocks, with a US consumer sentiment index from the University of Michigan released on Friday showing that consumers believe prices will jump 4.8% over the next year. This is the steepest climb since August 2008. Early last week, the June Consumer Price Index showed that inflation jumped 5.4% year-over-year, spooking investors.
US Dollar Jumps As Virus Looms
Investors are seeking shelter in the US Dollar on Monday, driving the greenback to nearly its strongest level in months, as the spread of the delta coronavirus variant shook investors’ confidence in growth. Of primary concern for investors is the reopening of the economy in England.
“The market is really trading on the uncertainty in the air around COVID,” National Australia Bank senior currency strategist Rodrigo Catril said on the bank’s morning podcast.
Daily infections have been surging from the United States and Europe to Asia and the global seven-day average of new cases each day is over half a million for the first time since May.
Meanwhile, traders are now holding their breath as Monday marks the end of most social curbs in England and a shift from suppression to trusting vaccination s to prevent serious illness. Boris Johnson’s government is betting fully vaccinated people are less likely to get seriously ill with COVID-19.
Daily Forecast
Gold is likely to remain under pressure throughout the session because of the strength of the US dollar. With the greenback’s upside momentum building, it looks as if the dollar index is poised for a surge into its Mar. 31 top at 93.430. This could trigger a pullback by gold into at least $1798.80 to $1770.40.
Uncertainly over the move in England to lift restrictions could also lift the dollar. Reuters is saying London epidemiologists are skeptical about the move while the prime minister, finance minister and health minister themselves are isolating as cases spread.
The market seems to be betting that more people will get sick. Gold traders will be watching the infection numbers closely in the UK because another surge should drive the dollar higher and gold prices lower.