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Gold up on Evergrande Fallout, Pre-Fed Play on U.S. Yields, Dollar

CommoditiesSep 21, 2021 04:12PM ET
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© Reuters.

By Barani Krishnan

Investing.com - Gold rallied for a second day in a row as the dollar and U.S. Treasury yields tried to find their way amid continued pressure on risk markets from the debt crisis at China’s biggest property developer, Evergrande.

Uncertainty over the outcome of the Federal Open Market Committee’s two-day policy meeting that ends with Wednesday’s news conference by Fed Chairman Jay Powell also kept risk in check. Stocks rebounded strongly in early trade before turning volatile on speculation whether Evergrande will be able to pay $83 million in interest due on its bond borrowings on Friday.

The Dollar Index, pegged against six major currencies led by the euro, was a touch lower at 93.213 by 4:09 PM ET (20:30 GMT). The yield on the U.S. 10-Year Treasury note was slightly higher at 1.32.

“Depending on how the Evergrande situation plays out with markets, gold could continue finding safe-haven buyers, or buying interest could evaporate once again as quickly as it appeared, particularly if the China government soothes nerves” of investors, said Jeff Halley, analyst at online trading platform OANDA.

“Either way, if the FOMC gives concrete guidance on a tapering timeline at Wednesday’s meeting, gold will resume its downward direction, as the former would inevitably lead to a stronger U.S. dollar."

U.S. gold futures’ most active contract, December, settled up $14.40, or 0.8%, at $1,778.20 per ounce on New York’s Comex, after a session high at $1,782.70. On Monday, when the Evergrande crisis exploded, December gold ended up 0.7%.

Halley noted that despite the two-day rebound, gold continued to have resistance at above $1770.

“Even if risk sentiment remains negative, it is hard to see gold recapturing the latter," he said. "Gold has support at $1742, followed by $1720 an ounce, followed by longer-term support in the $1675 region. Given gold’s recent price action, its path of least resistance remains lower despite the temporary respite.”

The Fed’s FOMC meeting could revisit the subject of tapering for the central bank’s stimulus program that has juiced stock prices over the past 18 months. The central bank has been buying $120 billion in bonds and other assets since the COVID-19 outbreak of March 2020 to support the economy. It has also been keeping interest rates at virtually zero.

Chairman Powell and his senior most colleagues at the central bank have so far issued mixed messages on a stimulus taper, with the broad market consensus being that any pullback will not occur until November.

An absence of any immediate announcement on the taper could weigh on the dollar and Treasury yields and extend gold’s lifeline.

Even so, gold needs to recapture the $1,800 level to sustain its uptrend, said Sunil Kumar Dixit, chief technical strategist at SK Charting in Kolkata, India.

“The main trend changes only upon a decisive trade above the $1,835 zone, and that has witnessed multiple failures,” Dixit said.

Gold up on Evergrande Fallout, Pre-Fed Play on U.S. Yields, Dollar
 

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Comments (10)
Eloy Rodrigo
Eloy Rodrigo Sep 21, 2021 5:11PM ET
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No matter what, they all around the world will print more and more money.The politicians only talk about money and only know printing money.
Eloy Rodrigo
Eloy Rodrigo Sep 21, 2021 5:11PM ET
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but they cannot print Gold, they can't do that.
milena villa escobar
milena villa escobar Sep 21, 2021 4:59PM ET
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Fellas  it's about basal three and reclassifying paper cold as a tier 3 asset and they corresponding reserve requirements that come with that reclassification.   .this could result in a massive short squeeze in the gold paper market. We'll see next year when it comes into effect after January 1.  Buy gold and hold.  Now it's just a matter of time
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Sep 21, 2021 3:36PM ET
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a front loaded exit withdrawal akin to Afghanistan taper, chaotic taper exit. fed will put conditions such as girls must be allowed to go to college the administration Taliban must clear debt ceiling and fiscal stimulus
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Sep 21, 2021 3:27PM ET
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Gold will go up when Dr. Bubble will be cured of the constipation, I heard he took taper laxative, and deliver chunky lumpy droppings in stocks. bigger the lumps faster gold will go up. mad rush to exit Afghanistan, stocks will cause stampede akin to Kabul, here stocks. gold will spike with heavy taper begins though rates supposed to go up will go down on safe haven buy.
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Sep 21, 2021 3:21PM ET
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Dr. Jerome Bubble will bumblebee the taper just as administration did with Afghanistan taper exit chaotically. Dr. Bubble will Taliban ize the administration putting conditions such as debt ceiling and fiscal stimulus package
milena villa escobar
milena villa escobar Sep 21, 2021 3:18PM ET
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Buy gold and hold now it's just a matter of time
Aryo Bimo Noviantoro
Aryo Bimo Noviantoro Sep 21, 2021 2:05PM ET
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gold Inverted head and shoulder daily chart👀🚀🚀🚀
Olga Haldemann
Olga Haldemann Sep 21, 2021 1:44PM ET
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The way gold psychology manifests itself lately makes me feel that price of gold is most likely to go down specifically if no deadline of tapering is announced. I would expect the price to jump up at first, as a result of algotrading, and then confidently reduce towards 1742.
Todd Holaday
Todd Holaday Sep 21, 2021 1:44PM ET
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I’ve read tapering is bad for gold, I’ve read it is good for gold. It surely cant be both. Why is there a differing opinion on this?
Olga Haldemann
Olga Haldemann Sep 21, 2021 1:44PM ET
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In theory tapering is bad for gold. Under hypothesis that risk aversion dominates the mood. In case of tapering most assets, including Treasuries, will face a sell off as the first response to increase of walue of USD. This will drive up the yield on treasuries making this form of risk protection more attractive then Gold. Gold is more attractive in the beginning of some crisis when it's price is certain to grow (a peginning of monetary easing or, in other words, a beginning of prolonged unpredictable inflation). Right now, after a period of earnings, investors are "spoiled" more then they are scared of inflation. They compare gold to other assets in terms of potential profit. When a gradual tapering begins and investors may realise that stocks are gradually decreasing in price instead, especially Tech sector - not keeping its grows up with the real interest rate, they might prefer to invest in Gold. Especially when it's price is low: today DXY was growing and so was gold.
Olga Haldemann
Olga Haldemann Sep 21, 2021 1:44PM ET
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But the most likely first immediate reaction of the price of gold, in case of tapering deadlines announced for this year, will be a sell off. Just like for all other assets. Only in this specific market mood this sell off will be followed by an immediate rebound.
milena villa escobar
milena villa escobar Sep 21, 2021 1:44PM ET
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Todd Holaday  it's. neither and both.  The truth is gold has no long-term correlation to anything..  added answers to no know rationale.
Ajay Uppal
Ajay Uppal Sep 21, 2021 1:39PM ET
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China would not bend and due to Evergrande US would suffer as US must be leading and holding highest bonds through their easy money bonds buying program. And this time US cant blame China. It was clear from China not ready to meet Biden.
Olga Haldemann
Olga Haldemann Sep 21, 2021 1:39PM ET
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Agree. I thought US treasury yield is growing because of compromised safety of American debt.
Mhmd Abbas
Mhmd Abbas Sep 21, 2021 1:30PM ET
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Wait for 1600<
Olga Haldemann
Olga Haldemann Sep 21, 2021 1:30PM ET
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It really seems like the prive should go down in both cases:) Gold became such bad risk, that inflation doesn't even scare so much :) it will not regain any faith untill it falls below 1600 and takes off from there.
 
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