Gold futures headed lower Wednesday for a second session, failing to hold above the key $1,800 level, a day after Federal Reserve Chairman Jerome Powell tried to placate markets that had grown skittish about a rapid rise in bond yields as the economy attempts to recover from the COVID-19 pandemic.
Some commodity dealers said the outlook for gold remained precarious as the asset has been under pressure for weeks, but bullion bulls argue that the prospects for the yellow metal are upbeat given the expectations for further fiscal spending from the U.S. government and a long recovery for the labor market from the pandemic.
“Gold is still in the danger zone since Powell did not deliver a response to the recent surge in yields,” wrote Edward Moya, senior market analyst at Oanda, in a note.
“Treasury yields can probably go a lot higher before the Fed will step in and that could derail gold’s outlook in the short-term,” he wrote.
Indeed, a surge in bond yields, lifting the 10-year Treasury note to around 1.42%, has forced investors to rethink the benefit of owning gold, which doesn’t over a coupon against government bonds, which are perceived as risk-free, safe-haven assets.
Against that backdrop, gold prices were trading $16.10, or 0.9%, lower at $1,789.80 an ounce. The precious metal declined by about 0.1% in the pervious session, but climbed by 1.7% on Monday. Most-active contract prices haven’t settled below $1,800 since Friday.
Meanwhile, March silver shed 1.3 cents, or nearly 0.1%, to trade around $27.675 an ounce. On Monday, gold’s sister metal hit its highest settlement since Feb. 1.
Powell on Tuesday emphasized the Fed’s commitment to keeping easy monetary policies unchanged for the foreseeable future, which helped stem heavy losses among tech companies, a group of companies that tend to be the most sensitive to rising rates and are also seen as richly valued.
Powell was holding his second day of remarks about the state of the economy and market Wednesday to a House committee.
“There is quite a lot of deep despondency among gold investors — they sense inflation, see evidence in the rising bond yields and even the dollar has come off a shade, yet gold fails to garner any momentum,” Ross Norman, chief executive officer of Metals Daily, told MarketWatch.
“Technical resistance levels at, say, $1,810 look unreachable just now,” he said. “Once again bitcoin is getting the headlines and, sorry, but gold is currently looking like the analogue solution in an increasingly digital world.”
Still, “the thing that is blighting gold is nominal yields,” said Norman, adding that real yields on the 10-year Treasury are still negative 0.8%.
“The good news on the other hand is Asian buying, he said, with the Chinese and Indians “back at last, but disinclined to chase the market higher.” Meanwhile, exchange-traded fund demand for gold, which was the key driver of 2020, “still looks lackluster.”
All in all, “gold looks well supported, but unable to gather momentum to mount a serious assault on resistance,” Norman said.
Among other metals, March copper rose 0.6% to $4.2035 a pound. Prices for the industrial metal were on track to mark a fifth straight session climb and continue to hold ground at their highest since 2011.
April platinum added 2.2% to $1,267.50 an ounce, while the most-active June palladium contract tacked on nearly 1.9% to $2,388 an ounce.