Thursday (March 4) sub-market intraday, the dollar index rebounded slightly, is now trading around 91.05; Spot gold was little changed, trading around $1,710 an ounce. Local time Thursday, colin Powell, chairman of the federal reserve will speak on the U.S. economy, its expression is expected to lead to market volatility, Powell in last week’s speech did not disclose worries about U.S. Treasury yields rise, suffered a major blow to gold prices and if he similar signals in today’s speech, gold may sell off again. In addition to Powell’s remarks, investors will also be watching developments on Biden’s $1.9 trillion economic stimulus plan, which media reports say the U.S. Senate may take up on Thursday.
Gold fell on Wednesday to its lowest level in nine months as rising US Treasury yields and a stronger dollar undermined the metal’s appeal. Spot gold settled at $1711.04 an ounce, down $27.19, or 1.56 percent, from an intraday low of $1701.91.
Benchmark 10-year Treasury yields are back near one-year highs hit last week, while the dollar rose on Wednesday as investors anticipated strong U.S. economic growth relative to the rest of the world. The rapid rollout of coronavirus has fuelled hopes of a quick economic rebound and also led to a flight out of investors’ portfolios of safe haven assets such as gold.
Gold prices fell below $1,720.00 an ounce on Wednesday and closed below that level, reinforcing expectations that prices will continue to fall in the coming days, according to Economies.com.
Economies.com notes that gold has confirmed a break below $1,720.00 after closing below that level, which has activated a bearish scenario for gold, with the next major target at $1692.00. On the upside, $1,749.00 an ounce is expected to pose key resistance if gold rebounds, according to Economies.com.
“As real interest rates continue to rise, this is a challenge for gold,” said Daniel Ghali, commodity strategist at TD Securities. Interest rate markets are also putting pressure on valuations across all asset classes, so gold is a casualty.”
Progress on the $1.9 trillion U.S. economic stimulus plan has offered little respite for gold as rising yields have increased the opportunity cost of holding bullion, threatening its appeal as an inflation hedge.
“Gold has a clear downside, and as long as the U.S. economy continues to get fiscal stimulus and the Fed remains reluctant to take action to push yields down, gold will have a tough time,” said Kyle Rodda, analyst at IG Market.
Fawad Razaqzada, market analyst at ThinkMarkets, notes that gold is once again subject to bond yields, and as yields rise, so will the opportunity cost of holding non-interest-bearing gold. Gold needs either a fall in bond yields or a sharp fall in the dollar to find some support.
Powell delivered a powerful speech
At 01:05 a.m. Hong Kong time Friday, Fed Chairman Colin Powell spoke about the U.S. economy. Mr Powell’s comments will be closely scrutinised by markets for any signs that the Fed is unnerved by the recent rise in yields.
The yield on the benchmark 10-year note rose to 1.481% on Wednesday, down from a one-year high of 1.614% hit last week.
Fed Chairman Colin Powell told the Senate Banking Committee last Tuesday that there are signs the economy is recovering from the new pandemic, but that the Fed is likely to keep policy accommodative for some time.
Mr. Powell reiterated on Wednesday that U.S. interest rates would remain low and that the Fed would continue to buy bonds to support the economy.
“A host of Fed speakers this week, including chairman Powell, will provide an opportunity for the Fed to slow the decline in Treasury prices by at least starting to express some of the concerns that have so far been notably absent from the Treasury,” said foreign exchange strategists at ING.
Analysts at Standard Chartered expect Powell to say the Fed is likely to respond with policy if rising long-term Treasury yields threaten the recovery. If Powell simply reiterates that the Fed’s current forward guidance and the recent rise in inflation are transitory, that could push Treasury yields higher.
Matt Orton, portfolio expert at Carillon Tower Advisers, noted last week that U.S. Treasury yields have risen to their highest levels in nearly a year, a sign that the market appears to be more receptive to talk of an economic recovery, which has had a negative impact on gold. In particular, Fed Chairman Colin Powell said the recent rise in Treasury yields was a healthy sign for the economy and played down concerns about inflation in U.S. fiscal policy.
“Powell did say that the recent rise in bond yields is a sign of confidence in the US economy, which could mean the Fed is willing to allow rates to move higher, which would be a challenge for gold,” said Saxo Bank analyst Ole Hansen.
“Rising bond yields continue to weigh on the gold market,” said Phillip Streble, chief market strategist at Blue Line Futures. Even with talk of more stimulus, gold has yet to find any way to a sustainable recovery. Mr. Powell doesn’t seem worried about the rise in 10-year Treasury yields, which is really bad for gold.
The U.S. Senate is expected to take up Biden’s $1.9 trillion stimulus bill on Thursday
In addition to Powell’s remarks, investors are also keeping a close eye on the $1.9 trillion economic stimulus package to be debated in the U.S. Senate this week.
Democrats, who narrowly control the House of Representatives, approved a $1.9 trillion new economic rescue package in the early hours of February 27. The next step is up to the Senate.
The $1.9 trillion new economic relief package, proposed by U.S. President Joe Biden, aims to provide financial support to families and businesses affected by COVID-19.
The plan includes $1,400 in direct benefits for most Americans, $400 a week in unemployment benefits, and an extension of programs that have made millions of Americans eligible for unemployment insurance.
US President Joe Biden on Thursday urged Democrats to quickly resolve the dispute over the $1.9 trillion stimulus plan. Biden took part in an online lunch hour meeting with Senate Democrats hosted by Majority Leader Chuck Schumer and stressed the need to put aside differences and pass a bill quickly, according to lawmakers in attendance.
In an effort to get the Senate to pass the $1.9tn economic stimulus package in the coming days, Mr Biden compromised this week by backing amendments to one of his “most popular” proposals — raising the threshold for $1,400 in checks. Compared with the version passed by the House, the revised bill sharply cuts the subsidies.
The U.S. Senate is expected to begin debating the $1.9 trillion stimulus package on Thursday, foreign media said, citing a Democratic aide. Lawmakers are awaiting a ruling on whether amendments to the plan can survive a filibuster.
On Wednesday, Senate Majority Leader Chuck Schumer said the Senate intends to pass the bill this week. The new version passed by the Senate still needs to be sent back to the House of Representatives for a new vote, a process that is expected to move forward next week.
The White House and some economists say the United States needs a massive stimulus package to revive the world’s largest economy.
The U.S. Senate is expected to take up President Joe Biden’s $1.9 trillion pandemic package, which Democrats hope to sign into law by March 14, when some current unemployment benefits expire, wrote Lukman Otunuga, a research analyst at FXTM.