The dollar index was mostly steady in early Asian trading on Thursday at around 91.65. Spot gold continued to be under pressure, trading around $1,736 an ounce. On Wednesday, Federal Reserve Chairman Colin Powell again sounded more upbeat comments on the economy, which increased risk appetite and weighed on gold prices. In the trading session, investors will focus on the so-called “horror” US retail sales data, which is expected to spark market action again.
Gold fell Wednesday as rising U.S. Treasury yields dampened the appeal of gold as a nonyield asset. Spot gold settled at $1,736.43 an ounce, down $9.09, or 0.52 percent.
Anil Panchal, an analyst at financial website FXStreet, wrote on Thursday that gold remained under pressure at around $1,736 an ounce as Asian markets opened on Thursday. Gold has fallen in three of the past four sessions, although the dollar index remains near one-month lows.
The dollar index.DXY closed down at 91.64, down 0.22 percent, after hitting as low as 91.57, its lowest since March 18.
Gold remained under pressure despite weakness in the dollar index. Higher Treasury yields are negative for gold, analysts said. The yield on the benchmark 10-year Treasury note rose to 1.63 per cent in New York trading on Wednesday.
While gold is considered a hedge against inflation, higher yields challenge that status as they translate into higher opportunity costs for holding gold.
Technically, gold remains blocked at $1750 / oz. On the downside, $1726 / oz will be the key short term support level.
David Meger, director of metals trading at High Ridge Futures in New York, said the rise in Treasury yields appeared to be putting some slight pressure on the gold market, but added that gold’s pullback appeared to be more technical, with $1,750 an ounce providing both technical and psychological resistance in the short term.
Powell’s comments hit gold prices again
Optimism about the outlook from Fed policymakers and the Beige Book, which has hinted at a modest U.S. economic recovery, has increased risk appetite in the market, hitting the safe-haven metal, analysts said.
In its latest Beige Book of economic conditions, the Federal Reserve said the recovery accelerated moderately from late February through early April.
In a speech Wednesday, Fed Chairman Jerome Powell again referred to an “inflection point” in the U.S. economy. Powell said the U.S. economy appears to be turning a corner, with economic and job growth accelerating.
It’s worth noting that in an interview on CBS Sunday, Mr. Powell also used the word “turning point” in his assessment of the economy. Mr. Powell said at the time: “What we are actually seeing is an economy that appears to be at an inflection point. This is due to widespread vaccination and strong fiscal support, strong monetary policy support, “he said. Zerohedge, a leading financial blog, noted at the time that Powell may have sounded a bit hawkish on the economy for the first time.
Mr Powell said on Wednesday that policymakers would wait until inflation reached 2 per cent on a sustained basis and the Labour market had fully recovered before considering raising rates. That is unlikely to happen before the end of 2022, he said.
“The majority of the committee did not think there would be a rate hike in 2024,” Powell said Wednesday at a virtual event hosted by the Economic Club of Washington. “But that’s not the committee’s forecast, that’s not what we voted on or acted on as a group, that’s really just our assessment. The market is paying too much attention to what we say about the economic forecast, and I’m going to pay more attention to what we describe as the results.”
Powell said the United States was entering a period of faster growth and job creation, and the main risk was another surge in COVID-19 cases due to strains of the virus that could be harder to treat.
Fed policy makers sharply raised their forecasts for economic growth and jobs at last month’s meeting, while holding interest rates near zero and signaling they will stay low until 2023.
Recent US economic data have been generally positive, with the economy adding a better-than-expected 916,000 jobs in March and some Fed officials suggesting the economy could add 1m jobs a month later this year.
U.S. retail sales data are known as the “horror data” because they usually have a big impact on financial markets and are therefore likely to have an impact on assets such as the dollar and gold.
Analysts said a better-than-expected U.S. retail sales data could push Treasury yields higher, which would hurt gold.
FXStreet analyst Eren Sengezer said if U.S. retail sales data were stronger than expected, that could push U.S. stock indexes higher again and limit the dollar’s potential gains.
U.S. retail sales are likely to surge 8.5% in March, after plunging 3.0% in February, according to TD Securities. “The volatility reflects the impact of severe weather in February and the disbursment of stimulus spending in January and March,” said TD analysts.
Anil Panchal, analyst at FXStreet, said: “Given the weakness in the market and the lack of new catalysts, gold is likely to extend its recent downtrend with sentiment mildly challenged. Thursday’s US retail sales data will be critical, while investors will also need to keep an eye on Coronavirus and geopolitical-related news, as well as updates on US President Joe Biden’s infrastructure spending.”
Panchal sees key support for the day at $1,729.72, $1,714.17 and $1,704.55. Important intraday resistance stands at $1754.89, $1764.51 and $1780.06.