By Barani Krishnan
Investing.com - Gold returned on Wednesday to the $1,700 an ounce level critically important to the confidence of those long on the yellow metal after a retreat in the dollar and U.S. bond yields from recent highs.
Despite the rebound, gold still finished down for a third straight month, losing about 1% for March. For the quarter, it fell almost 10%.
In Wednesday’s trade, benchmark gold futures on New York’s Comex settled up $29.90, or 1.8%, at $1,713.80 an ounce, after a session high at $1,716.15. The past two days had seen Comex gold plunge to the $1,600 territory it had not visited since March 12. Wednesday also saw its biggest one-day drop in more than a month when it fell 1.7%.
The spot price of gold traded lower than the futures, showing a gain of $24.27, or 1.4%, at $1,709.53 by 2:22 PM ET (18:22 GMT), after an intraday high at $1,715.32. Fund managers sometimes rely on the spot price more than futures for direction.
The Dollar Index, which pits the greenback against six major currencies, hovered at 93.2 versus its session peak of 93.5. Yields on the U.S. 10-year Treasury note also retreated to 1.73% from an intraday high of 1.75%.
“Gold is rallying after just dodging bear market territory as some investors anticipate the weaker dollar trend can’t be too far away,” said Ed Moya, analyst at online broker OANDA. “Gold needs pricing pressures to grow and that will take a few months at the very least.”
Gold had one of its best runs ever in mid 2020 when it rose from March lows of under $1,500 to reach a record high of nearly $2,100 by August, responding to inflationary concerns sparked by the first U.S. fiscal relief of $3 trillion approved for the coronavirus pandemic.
Breakthroughs in vaccine development since November, along with optimism of economic recovery, forced gold to close 2020 trading at just below $1,900.
Since the start of this year, the rut in the yellow metal has worsened despite the Biden administration issuing another Covid-19 relief of $1.9 trillion. The White House is also scheduled to detail later on Wednesday President Joe Biden’s separate infrastructure spending plan for some $2 trillion.
In spite of the dollar debasement expected from all these relief measures, the greenback has rallied so far at the expense of gold, which strayed near bear market territory at least twice this month when it lost 20% from its August record highs.
Both the dollar and bond yields have surged this year on the argument that U.S. economic recovery from the pandemic could exceed expectations, leading to spiraling inflation as the Federal Reserve insists on keeping interest rates at near zero.