On Friday morning in Asia, the dollar index was mostly steady at around 91.70; Spot gold also held firm, trading around $1,764 an ounce. Gold rallied on Thursday on a safe-haven bid sparked by rising geopolitical tensions. In addition, the decline in U.S. Treasury yields and the rising risk of U.S. inflation are also positive for gold. Investors will continue to watch developments in the U.S. and Russia during the session, with any sign of further tensions attracting more safe-haven buying support for gold.
Spot gold closed Thursday at $1,763.95 an ounce, up $27.52, or 1.58 percent, after hitting $1,769.66, the highest since Feb. 26.
Gold and silver rose sharply Thursday as the yield on the 10-year U.S. Treasury note fell and geopolitical tensions between the U.S. and China and Russia intensified, Kitco’s Gary Wagner wrote Thursday.
Gold futures posted their biggest one-day gain since March on Thursday, closing at a seven-week high, as benchmark U.S. Treasury yields eased and rising tensions with China and Russia boosted the metal’s safe-haven appeal, financial website MarketWatch reported Thursday.
COMEX gold for June delivery rose $30.50, or 1.8 percent, to settle at $1,766.80 an ounce. It was the highest close for the most active contract since Feb. 25, and the highest one-day close and percentage gain since March 9, according to FactSet data. In addition, Comex silver futures for May delivery climbed 1.7 percent to $25.96 an ounce.
Bullion bulls took a breather around two-month highs in Asian trading on Friday after bullion posted its biggest gain since early March on Thursday amid widespread risk aversion, wrote Anil Panchal, an analyst at financial website FXStreet.
Technically, the bulls are expected to remain in the dominant position unless gold falls back below $1,730 / oz. But gold will need to trade consistently above $1,765 an ounce for further gains.
Biden imposed massive sanctions on Russia
Tensions between the United States and China over Taiwan have risen, while relations between the United States and Russia have worsened. The Biden administration on Thursday expelled a number of Russian diplomats and announced sanctions against dozens of individuals and businesses, in part in retaliation for Russia’s interference in last year’s U.S. presidential election.
On April 15, the US government imposed sweeping sanctions on Russia and expelled 10 Russian diplomats for alleged cyber attacks, election meddling and other malicious activities.
On April 15, the White House issued an “Executive Order prohibiting the property of the Government of the Russian Federation engaged in certain harmful foreign activities.” The executive order imposes financial sanctions on Russia, including a ban on U.S. financial institutions from participating in the primary market for ruble and non-ruble denominated debt.
Wagner said the executive order leaves no doubt that the Biden administration is willing to impose tough and far-reaching new sanctions on Russia.
In a statement, the White House said U.S. President Joe Biden signed a new sanctions executive order, demonstrating the Biden administration’s determination to respond to and stop Russia’s harmful foreign activities. The White House statement accused Russia of interfering in U.S. elections and launching cyber attacks against the United States and its Allies.
The U.S. Treasury Department sanctioned six Russian technology companies for supporting Russian intelligence cyber programs, 32 entities and individuals for interfering in the 2020 U.S. presidential election, and eight entities and individuals for the Crimean issue.
The White House says the United States is expelling 10 Russian diplomats in Washington, including representatives of the country’s intelligence services.
“Today, the US Treasury Department’s Office of Foreign Assets Control (OFAC) took comprehensive action against 16 entities and 16 individuals who sought to influence the 2020 US presidential election at the direction of the leadership of the Russian government,” the Treasury said in a statement.
The United States is also working with the European Union, the United Kingdom, Australia and Canada to impose sanctions on eight entities and individuals linked to Russia’s continued occupation of Crimea.
U.S. Secretary of State Antony Blinken said in an April 15 statement that the actions are aimed at holding Russia accountable for its “reckless behavior.” The United States will respond firmly to Russia’s actions that harm the United States and our Allies.
In response to the new round of US sanctions against Russia, Russian presidential press secretary Dmitry Peskov said on the same day that Russia condemns any sanctions and considers them illegal. Russian Foreign Ministry spokeswoman Maria Zakharova told reporters that retaliation against the US sanctions was “inevitable” and that the US ambassador, John Sullivan, had been summoned. “This will be a very serious conversation for the US,” she said.
This is the second round of sanctions against Russia imposed by the Biden administration. In early March, the United States announced a series of sanctions against Russia over the Navalny incident.
Relations between the United States and Russia have been strained in recent years. Since the Biden administration took office, the two sides have been sharply divided on Ukraine, cyber security, human rights, election interference and other issues, and the confrontation has intensified.
Michael Armbruster, managing partner at Altavest, said rising tensions between the United States and China and Russia “could encourage some safe-haven buying.”
“The U.S. is getting tough on China and Russia, which could be the first sign that the market is starting to price in new risks,” Armbruster told MarketWatch. So far, the stock market has not reacted.”
Anil Panchal, an analyst at FXStreet, said gold could also benefit from the latest U.S. sanctions against Russia, as well as disputes with China over Hong Kong and Taiwan. It’s worth noting that talks between Washington and Tehran are also unlikely to resolve the issue and could keep relations between the U.S. and Iran sour, which also helps gold’s safe-haven demand.
Wagner said tensions were rising between the United States and China and between the United States and Russia. In terms of increasingly tense relations with China, Taiwan once again appears to be a major concern of the administration.
On April 15, an unofficial U.S. delegation met with Tsai in Taiwan. Tsai thanked the Biden administration for stressing the importance of peace and stability across the Taiwan Strait. Chinese foreign ministry spokesman Zhao Lijian to respond on the matter, said the us should fully recognize the question of Taiwan is highly sensitive, conscientiously abide by the one-china principle and the three sino-us joint communiques and the Taiwan question on proceed with caution, not to “Taiwan independence” secessionist forces signal any error, so as to avoid serious damage to peace and stability in the Taiwan strait and the coordination and cooperation in key areas.
Treasury yields fell and U.S. inflation fears grew
A closely watched retail sales report in the US showed sales rose 9.8 per cent in March from the previous month, against expectations of 5.8 per cent. The rebound from a 2.7 per cent drop the previous month was the biggest gain since May last year, reflecting an acceleration in economic growth following the pandemic.
“The US retail sales data added to traders’ optimism,” Naeem Aslam, chief market analyst at Avatrade, wrote in a note. “In the case of gold, we are already seeing more momentum as the dollar index loses further strength as the Fed chairman has informed the market that interest rates are not going to move higher any time soon.”
In other economic data, U.S. industrial production rose 1.4% in March; Initial claims for state unemployment benefits fell by 193,000 to 576,000 in the week ended April 10, the lowest since the week ended March 14 last year and well below expectations of 700,000.
Federal Reserve Chairman Jerome Powell said Wednesday that the U.S. economy accelerated into the spring. However, Mr Powell and other Fed officials said that brighter economic forecasts and higher inflation in the short term would not affect monetary policy and that the Fed would continue to provide support until the crisis was over.
Financial website MarketWatch wrote on Thursday that gold prices rose after a series of reports on the health of the U.S. economy. Given the threat of inflation, the reports provided some support for gold prices.
Kitco Special Economist Gary Wagner noted that the U.S. economy is showing a solid economic recovery, which has raised concerns that inflation will continue to rise. The biggest force driving gold and silver higher, however, was the fall in 10-year Treasury yields.
Treasury yields retreated Thursday, with the yield on the 10-year note falling to 1.54%. A fall in government-bond yields would spur demand for precious metals.
“The market is betting that there will be higher inflation requirements and that the Fed is not particularly concerned about inflation becoming a serious problem right now,” said Bart Melek, head of commodity strategy at TD Securities in New York.
Jeffrey Sica, founder of Circle Squared Alternative Investments, said: “Massive inflation is definitely coming and gold is the best asset as we are starting to see what I think are some historical levels of inflation.”
Michael Hewson, chief market analyst at CMC Markets UK, said: “Gold has done quite well on Thursday, we’ve seen weakness in the dollar and weakness in US 10-year yields. The big question right now is whether we can get out of last week’s highs near the 50-day moving average, which is limiting this rally.”
The dollar index fell as low as 91.49 on Thursday. A weak dollar can make dollar-linked assets more attractive to overseas buyers.
The Federal Reserve’s Beige Book was also positive for gold on Wednesday. Jeff Klearman, portfolio manager at GranitesShares in New York, said the report showed increased economic activity and modest wage and price increases in most regional Fed districts “are likely to fuel inflation concerns and add to price pressures” as producer and consumer prices rose more than expected.
Shortly after the Beige Book’s release, Klearman told MarketWatch that gold “continues to be supported by the Fed’s unprecedented monetary easing, negative real interest rates, a weaker dollar and rising inflation concerns.”