Important week for gold

Lately we have seen both gold and silver under bearish pressure. On one hand we saw gold reaching its lifetime high of $2075 in 2020, we even saw the yellow metal crashing to as low as $200 in the first quarter of 2021.

Market analysts and technicians have been consumed as they analyse the multiple factors that had created bearish pressure on both gold and silver pricing. Of all these factors, there are two connected factors that seem to have the greatest impact on creating negative market sentiment towards gold and silver. They are –

• Dollar strength 
• US government bonds and yields

A strengthening dollar is a direct result of rising yields and hence both remain interconnected.

There are signs that gold has found a bottom after a streak of weekly losses, according to analysts. Now, the focus is shifting to the Federal Reserve's rate announcement on Wednesday. All eyes remained glued to the  U.S. Federal Reserve meeting, due to start later on Tuesday.

U.S. Treasury Secretary Janet Yellen said Sunday the U.S. inflation risk is small and manageable. The Federal Reserve's two-day Open Market Committee (FOMC) meeting begins Tuesday morning and ends Wednesday afternoon with a statement and new U.S. economic projections. While no change in U.S. monetary policy is expected at this week's meeting, traders will be closely scrutinizing wording on the Fed's economic growth and inflation prospects.

Analysts are not expecting any significant policy changes as markets are starting to wonder if the U.S. could see sooner-than-expected rate hikes due to strong economic growth and rising yields.

Top gold dealers in India, investors and traders are generally more focused on better global economic growth prospects and the pandemic being tamped down by rising vaccination levels, and less focused on rising government bond yields that have at times recently produced speed bumps for the stock market bulls. The benchmark 10-year U.S. Treasury note yield is presently fetching 1.613%.

Currently we see yield rising over the following reasons-

• Massive stimulus
• Fast vaccination rollouts 
• Low-interest rates

Inflation expectations have soared over the past three months, with five-year breakeven rates rising to 2.6%, the highest since 2008. U.S. 10-year Treasury yields are now trading above 1.6% and some market participants are expecting the benchmark could reach 2% before year-end.

According to the gold dealers in India, Gold has lost $200 so far this year. But now analysts believe that the selling is probably done off and Wednesday’s Fed announcement will be a key driver for the precious metals sector this week.

In such uncertain environment it’s quite natural for investors to find ways to protect themselves against inflation. But they are also very well aware that the central bank may raise interest rates to keep inflation under control. 

While gold coins in Mumbai looks like an attractive hedge against rising prices, this isn’t the case when interest rates are going up too. However, it’s the real interest rates that matter — that is, the interest rates adjusted for inflation. In other words, when inflation kicks in but central banks hold off from raising rates in response. When investors see this happening, gold coins in Mumbai will then become an attractive investment proposition.

Stimulus may lead to inflation worries

Gold has declined by around 5% over the last few months, despite expectations of inflation rising to their highest since 2008.

Gold prices pulled back on Friday as robust U.S. bond yields and a strong dollar weighed on the metal, but bullion was on course for its biggest weekly gain in four weeks. 

Benchmark U.S. Treasury yields climbed, increasing the opportunity cost of holding gold, while the dollar bounced back from a near one-week low. President Joe Biden on Thursday signed his $1.9 trillion stimulus bill into law and said he was working to speed COVID-19 vaccinations and move the country closer to normality by July 4. 

Now that President Biden’s latest stimulus package (a cool $1.9 trillion) has been approved, inflation worries are on the rise. With the money supply enormously increasing and the oil price mounting, it’s pointing to an inflationary situation. While financial markets don’t like inflation, safe-haven assets such as gold tend to prosper.

The Americans have welcomed the stimulus program, but as we know any such package always creates government debt. This is a long-term problem that’s only getting worse but it’s also rapidly devaluing the dollar believes all the top gold dealers of India.

Analysts at RSBL believe that while the vaccine rollout is reassuring, the road to normality is going to come at a significant cost. Along with direct checks to members of the public, this massive stimulus package includes provisions for employment. It also includes a financial injection into state and local governments along with schools. This is all meant to help get the economy reopened and life back on track.

Investors are now awaiting the U.S. Federal Reserve meeting next week for direction on its monetary policy. Meanwhile, once can consider to buy April gold future at dips of $1703 and average at $1969 target $1723 and $1738 extension $1746.

All 3 sentiments exisit for gold- bearish bulish and neutral

 Gold prices continued to stay under pressure and recently reached at $1679, the lowest level since early June, affecting the gold dealers in India. It then bounced modestly to the upside but remained under pressure about to pots the eight daily losses out of the last ten trading days.

In an environment of rising U.S. yields, growth recovery, vaccine rollouts, and investors getting more optimistic on growth prospects; hence demand for safe havens is expected to struggle.

Gold slumped last week, hurt by the rising Treasury yield environment. The rising Treasury yield, driven by strong economic data and an appetite for taking on risk, has sent the demand for gold falling continuously.

Higher US yields and a stronger greenback continues to be the key factor keeping gold on a negative bias. Not even risk appetite in the US has helped the yellow metal. 

U.S. 10-year Treasury yields edged lower, raising the appeal of holding gold. A steady rise in bond yields makes holding gold less attractive as investors typically tend to gravitate toward assets that generate steady income in the form of interest or dividend.

It was a combination of U.S. dollar strength and market participants bidding the precious yellow metal lower that resulted in gold’s considerable decline

Two sessions and DOW gained nearly +1000 points on US Covid package but the NASDAQ slipped by 3% and most bond yields did not show huge positive traction. 

Gold stayed below $1700 since Mondays opening and testing crucial support bands of $1680-1685. As said this and around $1678, all are significant support bands and on a pull back before Wednesdays’ report- CPI, Block buster data. It can be $1705-$1715 again. 

Gold ETF holdings have now fallen three months in the last four and this trend is set to continue if yields continue inching higher.

On Monday, the yellow metal dropped to the fresh low since June 2020 amid the US dollar rally and strong Treasury yields defying commodity bulls. However, the bears seem to have stopped for a breather while waiting for the US House session on Tuesday.

The price of gold coins in Mumbai rose on Tuesday, as a pullback in U.S. Treasury yields added some lustre to the metal after it hit a nine-month low in the previous session.

Spot gold rose 0.7% to $1,692.21 per ounce during early trading hours in Tuesday. Prices had fallen more than 1% on Monday to $1,676.10, their lowest since June 5.

Gold picked up bids near $1,683, up 0.20% intraday, during early Tuesday. The yellow metal recently benefited from the recent halt in bond rout while also ignoring the US dollar’s sustained rally.

Rising bond yields have taken a significant bite out of the gold dealers in India this year, but investors shouldn't fear increasing nominal yields as real interest rates will remain negative for the foreseeable future.

We continue to remain optimistic on gold coins as the price is supported by long-term fundamentals, including rising debt levels and extremely accommodative monetary policy.

Additionally, issues concerning the vaccinations and economic recovery should also be observed as fears of the coronavirus (COVID-19) variants battle unlock efforts in the West.

Markets may have turned bearish for gold in the short term and neutral in the long term, we still see gold as investors favourite.