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Gold Cracks $1,750; Watch on Whether Yields, Dollar Will Disrupt Party

CommoditiesApr 08, 2021 01:47PM ET
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© Reuters.

By Barani Krishnan

Investing.com - Gold smashed the $1,750 an ounce resistance the first time in six weeks on Thursday, setting a technical floor at least for its return to $1,800 — though another run-up in U.S. bond yields and the dollar could disrupt that party.

Benchmark gold futures on New York’s Comex settled up $16.60, or nearly 1%, at $1,758.20 an ounce, after a session peak at $1,759.35.

The spot price of gold was up $19.18, or 1.1%, at $1,756.89 by 1:43 PM ET (17:43 GMT), after a high at $1,758.72. Moves in spot gold are integral to fund managers, who sometimes rely more on it than futures for direction.

The last time gold traded above $1,750 was on Feb. 26, when it had just broken under the $1,800 level on the back of rallying yields and the dollar.

On Thursday, the benchmark yield on the U.S. 10-year Treasury note hit a session low of 1.63% in a steady retreat from 14-month highs of 1.77% hit on March 30.

The Dollar Index, which pits the greenback against the euro and five other major currencies, was down 0.5% at 92.04, after scaling the 93 level last seen in November.

Charts for both Comex and spot gold indicated that $1,800 was within reach if the current momentum isn’t broken.

“A weekly close above $1,755 would really confirm potential for the next target of $1,780-$1,835 and possibly beyond,” said Sunil Kumar Dixit of SK Dixit Charting in Kolkata, India.

But some think yields and the dollar could also rebound and cut short the gold rally.

“However, a combination of rising yields and a broadly upbeat mood in the financial markets is likely to keep any gains in the non-yielding safe-haven precious metal capped for now,” said Sophie Griffiths, markets analyst for online broker OANDA.

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, however, forced gold to close 2020 trading at just below $1,900.

Since the start of this year, gold has had more headwinds as the dollar and bond yields often surged on the argument that U.S. economic recovery from the pandemic could exceed expectations, leading to fears of spiraling inflation as the Federal Reserve keeps interest rates at near zero.

Gold’s fall from grace in 2021 has been even more remarkable considering Congress’ passing of Covid-19 relief of $1.9 trillion in March and the Biden administration’s plan next for an infrastructure spending bill of $2.2 trillion.

The dollar debasement from these stimulus measures should have sent gold rallying as an inflation hedge. But the opposite has often happened.

Gold Cracks $1,750; Watch on Whether Yields, Dollar Will Disrupt Party
 

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Comments (1)
Gamer Turtle
GamerTurtle Apr 08, 2021 2:02PM ET
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All about where yield and dollars goes. Fundamentally speaking no reason for dollar to header lower as US remains the strongest economy around, financial crisis tends to hit other countries far more harder than the US. Yield is a different animal, expectation is far more important than fundamental, in my opinion. I don't see how Fed can raise rates at all, otherwise they would have to give up 3 hikes in 3 months in 2019 which is precovid. However market sentiment can take yield higher on the fact that fed will eventually roll back its program to some degree & hike rate at least few times try to get market to roll off the cheap money.
SunilKumar Dixit
SunilKumarDixit Apr 08, 2021 2:02PM ET
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Gamer Turtle. Splendid elaboration of Gold dynamics and possibilities. However, flooding of one huge stimulus after another, currency debasement, impending inflation and ever mounting debt should have its natural effects too. Also, fed has, time and again, voiced categorically it's reluctance to tapering, at least till the year 2023.
Gamer Turtle
GamerTurtle Apr 08, 2021 2:02PM ET
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SunilKumar Dixit  that's just natural inflation which gold is subject to, at end of the day, stuff becomes more expensive in general and we'll all be using $1000 bill instead of $100, this however doesn't occur overnight. gold near term or incoming month movement will very speculative as usual. price action in recent months seems to suggest whenever there is a sell-off in bonds, there is a selloff in equity and gold too.
Mehdi Captain Music
Mehdi Captain Music Apr 08, 2021 2:02PM ET
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You are right. Yield and dollars go back to the fed. It's the money cycle.
Mehdi Captain Music
Mehdi Captain Music Apr 08, 2021 2:02PM ET
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SunilKumar Dixit hi bro.I’m confused!To whom does the Fed owe debt?!Everything is rising higher, but the dollar is joking!
 
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