Traders continue to bid yields higher in spite of the Federal Reserve statement

March 19, 2021

London (Mar 19)  Immediately following the conclusion of the FOMC meeting yesterday, we saw gold stage a strong rally moving from roughly unchanged to close higher by double digits. Many analysts interpreted the gains as a direct result of the Federal Reserve statement, which included the most current “dot plot,” indicating that interest rates most likely will stay where they are through 2023.

However, in trading overseas, gold continued to climb higher as it opened in Australia on Thursday morning but then began selling under pressure as it moved into Hong Kong and London. The primary events that caused gold prices to weaken were dollar strength and higher yields in U.S, Treasury notes. In fact, the 10-year Treasury yield gained in excess of nine basis points, moving the current return to 1.73%. An absolute negative factor for gold placing bearish pressure on the metal.

This signals that even with the definitive tone of Chairman Powell once again conveying the Federal Reserve’s intent to keep interest rates where they are for a long time. While market participants looking at good economic data nonetheless continued to bid yields higher in anticipation of a rate hike disregarding the dot plot produced by the Federal Reserve as well as Jerome Powell statements during the press conference yesterday.

However, by the close of trading in New York gold basis, the most active April 2021 Comex contract gained significant ground. And although it closed well off of its high, which was $1754, it did gain $7.50, or 0.43%, and is currently fixed at $1734.60. Concurrently the uptick in gold occurred with extreme dollar strength, which was also up approximately .045%. That means if the dollar had been neutral today, we would have seen a gold rise by approximately $15.

Another interesting aspect was the negative correlation in terms of price change between spot or Forex gold and gold futures. Although spot gold is still slightly above the price of April’s futures contract, the net change on the day was a decline of nine dollars in spot compared to a positive gain of $7.50 in gold futures. According to the KGX (Kitco Gold Index), today’s decline of $9.00 is a combination of dollar strength and selling pressure. The vast majority of today’s change occurred because of dollar strength which accounted for $7.85 of the decline, with the remaining $1.15 resulting in spot gold at $1736.50.


Silver Phoenix Twitter                 Silver Phoenix on Facebook