Futures for gold headed sharply lower Tuesday, in post Presidents Day action, with investors focused on gains in stocks and a strong climb for benchmark bond rates, which can compete against bullion for haven bids.
Indeed, bond rates were rising to the highest level in about a year, reflecting what some on Wall Street refer to as a risk-on environment centered on hope of progress toward a $1.9 trillion coronavirus relief package from the Biden administration, as well as declining cases of COVID-19 and an increasingly successful vaccine rollout.
The price drop for bullion accelerated somewhat after the New York Fed’s Empire State business conditions index showed a rise of 8.6 points to 12.1 in February, marking highest level of activity since July. Economists had expected a reading of 5.9, according to a survey by the Wall Street Journal.
Any reading above zero indicates improving conditions.
“This lack of energy in the [gold] rebound is due to the permanent ‘risk on’ scenario dominating stock markets. As a result, the price was unable to rebound and attack the first significant resistance at $1,845-$1,850,” wrote Carlo Alberto De Casa, chief analyst at ActivTrades, in a daily research note.
April gold was trading off $22.50, or 1.2%, to trade at $1,800.80 an ounce, clinging to a psychologically significant level at $1,800.
“We will have a bearish signal only with a decline below the support zone of $1,790, which is the low reached earlier this month,” the analyst wrote.
Meanwhile, silver for March delivery gave up 24 cents, or 0.9%, to trade at $27.90 an ounce.
Moves for the metals come after gold put in a weekly gain of around 0.6% on Friday, which was its first weekly climb since the week ended Jan. 22, according to FactSet data based on the most-active contract. Silver scored a weekly advance of more than 1%.
Bond yields were near the highest level since March, with the 10-Treasury note at above 1.25%. Bond prices fall as yields rise. Richer yields for government bonds, however, can undercut appetite for gold, which doesn’t offer a coupon.
On top of that, measures of fear or implied volatility, as gauged by the Cboe Volatility Index, were down near historical averages after remaining elevated since the height of pandemic selling back in March. Lower readings of the VIX tend to imply growing appetite for assets considered risky like stocks and away for those perceived as havens like bonds and gold.