Under Pressure Again
The gold market is under pressure Monday as the new trading week gets underway. The yellow metal is seeing some selling enter the market as it is forced to compete with other asset classes. Rising bond yields coupled with a stronger U.S. Dollar Index is giving investors pause and a reason to hit the “sell” button today.
The benchmark U.S. 10-year note is yielding around 1.62% early Monday afternoon. This key treasury contract has been seeing a steady climb in its yield. That ascension has investors worried, and higher yields may not only negatively affect the price of gold but may also have a bearish influence on stocks. Although the current currency yield itself may not be a cause for concern, the steep uptrend in yields could be indicative of rising inflationary pressures or worries about the Federal Reserve’s plans going forward. Whatever the case may be, treasury yields are worth watching and gold investors will likely pay close attention to yields in the weeks and months ahead.
The dollar has hit a 3.5 month high and has been trending higher in recent action as well. Currently sitting at 92 and change, the Dollar Index could potentially make its way towards the 94 region before finding more serious selling pressure. The greenback is currently benefiting from stock weakness and the recent passage of Biden’s $1.9 trillion stimulus package.
Geopolitical risks may be on the rise, however, and have the potential to provide a much needed boost for gold and metals. Over the weekend, Houthi rebels staged a drone attack on Saudi Arabian oil facilities that led to a rise in crude. The oil market hit over $67 per barrel before backing off on profit taking. The situation is also likely to be closely monitored by global investors, as any further escalation has the potential to affect global oil supplies running out of the Persian Gulf region.
Recent Chinese economic data would seemingly suggest that the globe’s second-largest economy is running at full speed. Overnight, China reported that both imports and exports rose sharply above expectations. Further positive economic news from China may keep gold supported as it could be indicative of stronger metals demand from China.
The gold market is in a downtrend on the daily chart and prices stooped to a 10-month low today. The question now becomes how much lower might they go? The $1600 may seem like a far ways off, but the market could reach that price point within days. Strong technical support in the region could keep the yellow metal from falling any further, however, and the bulls could become increasingly aggressive on any moves lower. The bulls, on the other hand, will likely target resistance in the $1750 area as a first step. The market is really in no man’s land at current levels and the next several sessions could dictate whether the bulls or bears control the metal for the foreseeable future.