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Gold settles at 9-month low as Powell’s comments help strengthen the dollar, bond yields

Thu Mar 04 2021

 

Gold futures declined on Thursday, with bullion settling at its lowest in nine months, pressured by a strong rise in the U.S. dollar and strength in U.S. Treasury yields.

 

During a Wall Street Journal webinar Thursday, Federal Reserve Chairman Jerome Powell said he would be concerned about a disorderly move in the bond market, but suggested that hadn’t yet had a material impact on financial conditions.

 

Against that backdrop, the U.S. dollar, as gauged by the ICE U.S. Dollar Index DXY, 0.12%, moved up nearly 0.7% in Thursday dealings and headed for a weekly climb of 0.7%, while gold was heading for a weekly slide of 1.9% based on the most-active contract, FactSet data show.

 

Meanwhile, the 10-year Treasury note yield TMUBMUSD10Y, 1.565% topped 1.5%.

 

A rising dollar and strength in yields can make gold less attractive to buyers seeking safe-haven investments.

 

“Gold is reacting, as are the rest of the major markets, to the rise in bond yields,” Brien Lundin, editor of Gold Newsletter, told MarketWatch. “And bond yields are of course reacting to Chairman Powell’s remarks and the lack of any substantive commentary on rising yields or the Fed’s commitment to keep rates low.”

 

“What we’re seeing right now is the pre-fight face-off between the Fed and financial markets,” said Lundin. “What’s coming is a battle royale wherein the markets are demanding that the Fed to do something to halt the rise in rates.”

 

“The end game will mean either Fed action or a loss of credibility in the dollar, and under either scenario gold will benefit,” he said. “Gold is suffering through this transition phase right now, but it will benefit greatly from the policies that will result.”

 

Gold for April delivery on Comex GC00, -0.35%   GCJ21, -0.35%  lost $15.10, or 0.9%, to settle at $1,700.70 an ounce, after trading as low as $1,691.80. Prices based on the most-active contract marked their lowest settlement since June 5, FactSet data show. They lost 1% on Wednesday.

 

The precious metal is “having a terrible year, down almost 10%, and still looking very vulnerable,” said Edward Moya, senior market analyst at Oanda, in a market update ahead of Powell’s speech.

 

“Gold bulls are getting dizzy as they look over a cliff of price action that could see another $100 of weakness,” he said. “If the bond market continues to ignore the [Federal Reserve], gold could be in for a few rough weeks. The Fed should save the day for gold bulls, but nervousness remains elevated.”

 

Commodity dealers also digested economic reports with the number of new applications for U.S. unemployment benefits rising slightly to 745,000 for the week of Feb. 27, signaling the economy is still a long way from recovering all the jobs lost during the coronavirus pandemic.

 

The monthly U.S. jobs report will be released by the U.S. Labor Department on Friday.

 

Among other metals Thursday, May copper HGK21, 1.62% shed 4% to $3.9785 a pound. April platinum PLJ21, -1.09% lost 3.9% to $1,135.30 an ounce and June palladium PAM21, -0.25% settled at $2,342.80 an ounce, down 0.5%.

 

Source: https://www.marketwatch.com/