Strong US economic data! Treasury yields are back up! The gold rally is in jeopardy!

On Thursday, gold fell 0.7% to $1,768.4 an ounce after U.S. Treasury yields jumped on positive U.S. economic data.

The yield on the benchmark 10-year Treasury note rose to its highest level since April 13 as President Joe Biden proposed trillions of dollars in new spending and data showed U.S. economic growth accelerated in the first quarter. Today’s first-quarter gross domestic product report showed the US economy grew 6.4 per cent, well above the 4.3 per cent rise in the previous quarter and better than market expectations. Meanwhile, weekly U.S. initial claims for jobless benefits stood at 553,000.

Despite concerns about the continued rise of COVID-19 in some countries, investors remain optimistic about the prospects for a strong recovery in the global economy. In addition, U.S. President Joe Biden’s $1.8 trillion package for families and education has further boosted investor confidence, keeping the S&P 500 and Nasdaq at record highs, further reducing gold’s appeal.

At the same time, some fresh selling suggests the market has already priced in the Fed’s dovish message. This in turn supports the prospect of some significant downside for gold. A sustained weakness to the $1,765-60 area would reconfirm the bearish outlook. Gold has plenty of support at the $1,745 level, and if that support holds, there could be another consolidation period in the short term. If the bond market believes the Fed will remain stubbornly loose amid strong economic data over the next few months, gold could climb further.

Looking ahead, “rising bond yields and optimistic risk appetite are weighing on safe-haven Metals,” said Jim Wyckoff, senior analyst at Kitco Metals in Chicago. “Judging by the daily charts, we are still in the near-term uptrend in prices. 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.”

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