On Friday (April 30) in the sub-session, the dollar index was basically stable, now trading around 90.65; Spot gold continues to come under pressure, with bullion currently trading around $1,767 an ounce. Analysts said there was a risk of a further sell-off if gold fell below the key support of $1,765 an ounce. Investors will be looking at the performance of the dollar and Treasury yields, which are expected to provide a guide to gold prices. On Friday night in Hong Kong, investors will get a slew of U.S. economic data, with the Federal Reserve’s favorite inflation gauge, the PCE price index, the most closely watched and expected to have an impact on market movements.
Gold fell more than 1 per cent at one point on Thursday as US Treasury yields jumped on positive US economic data. Spot gold settled at $1772.18 an ounce, down $9.50, or 0.53 percent.
“Rising Treasury yields and optimistic risk appetite are weighing on safe-haven Metals,” said Jim Wyckoff, senior analyst at Kitco Metals. According to the daily chart, gold is still in the recent uptrend. However, the upward trend in prices is now a little dangerous… If it doesn’t break above $1,800 in the next week or so, then it could fall back to lower levels.”
FXStreet analyst Menghani said gold saw some selling on Thursday, falling to the $1,765 area, its lowest level in more than a week. Fundamental bullishness in financial markets has had a negative impact on safe-haven assets, limiting gold’s gains. Investors remain optimistic about the prospects for a strong recovery in the global economy, despite concerns about the continued deterioration of the COVID-19 epidemic in some countries. In addition, U.S. President Joe Biden’s $1.8 trillion package for families and education further boosted investor confidence. In addition, a strong rally in U.S. Treasury yields boosted the dollar and weighed on gold.
Gold prices fell sharply on Thursday, briefly falling below $1,765.00 an ounce, Economies.com said in an article on Friday. However, gold has since rebounded and is now back above that level. Therefore, the bullish trend scenario for gold remains valid for some time to come. However, gold needs to stay above $1,765.00 / oz to maintain bullish expectations.
Technical analysts said a break below $1,765 support would open the door for a move towards $1,740, with the risk of a move towards $1,700 a Troy ounce if the metal breaks below that level.
U.S. Treasury yields rose on Thursday after the government reported strong economic growth in the first quarter and an improvement in initial claims for jobless benefits last week. Gross domestic product grew at an annualized rate of 6.4% in the first quarter, the second-fastest pace since the third quarter of 2003, the data showed. Growth in the first quarter was driven by consumer spending, which rose 10.7 per cent compared with 2.3 per cent in the fourth quarter. A separate report on Thursday showed initial claims for state unemployment benefits fell 13,000 to a seasonally adjusted 553,000 in the week ended April 24.
The yield on the benchmark 10-year US Treasury rose 3 basis points to 1.65 per cent on Thursday, buoyed by upbeat economic reports. The dollar index, which tracks the greenback against a basket of currencies, closed at 90.65 after hitting a session high of 90.78. The dollar rebound put pressure on dollar-denominated gold.
Saxo Bank analyst Ole Hansen said there was a lack of confidence in the gold market, which briefly broke through $1,790 an ounce but failed to challenge the 1,800 level again. “The market looked at what was going on in other markets and the rise in the dollar and real interest rates led to some profit taking in gold.”
According to MarketWatch, the U.S. government’s report on Thursday that first-quarter GDP growth was 6.4% pushed the yield on the 10-year Treasury note up nearly 3 basis points to 1.65%, which was negative for gold.
Peter Grosskopf, chief executive of precious metals investment manager Sprott, said gold had continued to be squeezed by rising bond yields, but there was now a widespread belief that inflation would rise as the economy rebounded. The main reason for Thursday’s pullback may be that markets are getting too confident about deficits and debt.
Gold also gained attention after dovish comments from Federal Reserve Chairman Jerome Powell. ‘A good jobs report doesn’t mean it’s time to start talking about tapering,’ Mr. Powell said at a news conference after Wednesday’s Fed decision.
“This is not the time to start talking about austerity,” Powell said. We will let the public know in advance. It will be some time before we see substantial further progress. We had a great jobs report. It is not enough just to start talking about tapering. We need to see more data.”
Grosskopf said the Fed and Powell’s comments are long-term support for gold, which the market sees as a basis for risk assessment. With stimulus and deficit funding in place, the market will be more concerned about the impact of Treasury trading on gold. Gold is expected to move back above $1,800 / oz as risk aversion increases, but a move to $2,000 will require a correction in equities, Treasurys, and high yields.
The annual rate of the core PCE price index is the Fed’s preferred inflation gauge and has a significant influence on interest rate decisions.
The PCE price index was first developed by the U.S. Department of Commerce’s Bureau of Economic Analysis and adopted in 2002 by the Federal Open Market Committee, the Fed’s policy-making body, as a leading measure of inflation.
The Federal Reserve left its benchmark interest rate unchanged at 0 to 0.25 percent on Wednesday, keeping its $120 billion monthly asset purchase program unchanged, as expected. The Federal Reserve reiterated its commitment to using a full range of tools to support the U.S. economy, thereby promoting the goal of maximum employment and price stability.
“Indicators of economic activity and employment have strengthened with progress in vaccination and strong policy support,” the Federal Open Market Committee said in a statement. The sectors most adversely affected by the pandemic remain weak but have shown improvement. “The rise in inflation mainly reflects temporary factors.” “Risks to the economic outlook remain,” the Fed said.
Fed Chairman Colin Powell said at a news conference that the economy is still a long way from its employment and inflation targets. The recovery remains uneven and incomplete, and it is likely to take some time before substantial further progress is made.
On inflation, Powell said no one should question the Fed’s determination to control specific inflation and that one-off price increases are unlikely to lead to sustained inflation.
‘It will take some time for inflation expectations to rise, and this is expected to be accompanied by a strong recovery in the labor market,’ Mr. Powell said. If inflation expectations do rise above the 2 per cent level, tools will be used to bring them down.