The gold market kicked off the new trading week on a strong note Monday. Spot gold prices gained nearly $26 per ounce as a combination of short covering and bargain hunting fueled buying interest in the metal.
The price of gold hit a multi-month low on Friday. The weakness to end last week provided bulls with a strong reason to buy today as key outside markets also showed cooperation towards gold and helped the yellow metal gain ground. Stock weakness, especially earlier in the session, also lent a hand. The story for gold investors and traders this week remains the same: Inflation and rising bond yields.
The benchmark 10-year treasury note fetched a yield of 1.369% today, hitting a one-year high. Although the 10-year yield has been trending higher in recent weeks, some analysts have suggested that the rate would need to hit 4% before the note could really begin to compete with technology stocks for investor attention. Rising yields could be viewed as inflationary, however, and that inflationary outlook is what may have investors troubled. The talk of accelerating inflation comes at a time when the U.S. Government is looking to roll out a massive stimulus bill that could further fuel rising prices.
The threat of inflation is not just a U.S. problem, either. Several nations, including the U.S., Europe, China and the U.K. , will begin to roll out their own respective environmental initiatives. As the central banks of these areas take action, the flood of capital could quickly become excessive while fueling a rapid and significant rise in the prices of goods and services.
Regarding monetary policy, U.S. Federal Reserve Chairman Jerome Powell is scheduled to speak to the Senate Banking committee on Tuesday. Investors and markets may pay close attention to Powell’s commentary as they look for clues as to the central bank’s plans and thinking.
A weaker dollar and higher crude oil prices also supported gold on Monday. Higher crude prices are yet another possible symptom of rising inflation and may be watched closely by investors.
In other news, the Central Bank of Russia has continued its accumulation of gold. The bank reportedly added more bullion to its reserves and its holdings of gold have surpassed its dollar position. This trend could become increasingly important as a growing number of nations look to establish trade outside of the greenback in the months and years ahead. The dollar is clearly under a degree of pressure as the global reserve currency of choice, and if the dollar loses its top position it could send the value of the currency spiraling lower. Further dollar weakness could boost gold further, possibly fueling a return to previous all-time highs or beyond.
Although Monday’s strong showing was certainly helpful, the bears still have control of the daily chart and the multi-week downtrend that has developed. The bulls next target may be a close above resistance around the $1850 level. The bears will target the $1800 level and last week’s lows near $1760.