Gold futures eked out a modest gain on Monday, for a second session in a row, as Treasury yields strengthened but eased off the session’s highs.
Investors continued to react to the Federal Reserve’s signaling that it will taper purchases of billions in government debt and mortgage-related bonds as the U.S. economy recovers from COVID-19.
“With downside momentum seemingly slowing, gold could see some reprieve in the near term but the broader outlook isn’t great,” said Craig Erlam, senior market analyst at Oanda, in a market update. “Inflation is typically part of the bullish case for gold, but it’s very much working against it at the moment as it pushes central banks towards the stimulus exit doors.”
For now, “lower inflation and more central bank stimulus is seemingly more favourable for the yellow metal,” said Erlam.
“Bearish elements,” such as the hawkish comments from the Federal Reserve last week and expectations for interest rate hikes, have been predominant, said Carlo Alberto De Casa, analyst at Kinesis Money. For now, investors do not seem to be too worried about the risk of a domino effect from China property giant Evergrande’s
debt woes, he told MarketWatch.
Meanwhile, silver for September delivery SIZ21 rose 27 cents, or 1.2%, at $22.694 an ounce, after gold’s sister metal posted a 0.4% weekly rise on Friday.
De Casa said silver’s rebound comes after weeks of declines but so far, “does not represent … a proper inversion” for prices.
Monday’s trade for precious metals comes against the backdrop of a rise in yields, with the 10-year benchmark Treasury note
up at 1.475%, though down from highs above 1.513% — the highest rate since the start of July. The longer-date 30-year Treasury bond
touched highs above a psychologically significant level at 2%.
Higher rates for government debt can compete with precious metals, such as gold and silver, which don’t offer a coupon.
Anticipation of a reduction of the Fed’s purchases of $80 billion in Treasurys and $40 billion in mortgage-backed securities, in a process referred to as tapering, has put pressure on demand for Treasurys, pushing yields higher. Bond yields and prices move in the opposite direction.
However, likely capping any potential declines for bullion and silver are worries about the outlook for Evergrande, which was blamed for roiling global markets last week. Reports indicate now that the company which has some $300 billion in debts, has failed to make key payments due last week, with a further slug of its debt obligations coming due soon.
Gold prices found some support after China’s Evergrande failed to make a payment on offshore bonds, with additional payments due this week. “Because of the uncertainty surrounding this situation,” investors migrated to gold, wrote Naeem Aslam, chief market analyst at AvaTrade in a daily note.
However, 10-year Treasury bond yields rose after the Fed hinted at commencing the withdrawal of its stimulus program in November. “A rise in Treasury yields raises the opportunity cost of holding gold, causing investors to shift to other forms of investment,” he said.
For now, gold prices are “more linked” to the inflation situation and the Fed’s monetary policy, Aslam told MarketWatch Monday, adding that he continues to expect gold prices to “consolidate,” with a potential to move to the downside.
Gold prices modest support even as data Monday revealed that U.S. orders for durable goods climbed by 1.8% last month. Economists polled by the Wall Street Journal had forecast a 0.6% increase. The increase in business orders was somewhat exaggerated last month, however, with bookings up a scant 0.2% if transportation is excluded.
Among other metals traded on Comex, December copper
climbed by nearly 0.1% to $4.29 a pound. October platinum
added 0.2% to $981.60 an ounce, while December palladium
settled at $1,947.70 an ounce, down 0.2%.
The month of September has “favored the palladium bear camp with macroeconomic slowing in the numbers, projections of unending chip shortages in the auto industry, and threats of severe economic change in China from reform measures,” analysts at Zaner wrote in Monday’s daily commentary. “However, from the a technical perspective, the palladium market is oversold, with the most recent positioning report showing a new ‘record short’ in the [speculative] and fund categories.”