After a record-breaking rally last year, gold has lost momentum amid optimism over economies reopening and vaccine rollouts, with the advancing dollar and rising bond yields denting demand for bullion.
Rising bond yields and upbeat risk appetite is denting the safe-haven metal. Gold fell more than 1% on Thursday as U.S. Treasury yields gained on upbeat U.S. economic data. Benchmark 10-year note yields rose to more than a two-week high during the session on U.S. President Joe Biden’s proposal of trillions of dollars in new spending and data showing U.S. economic growth accelerated in the first quarter. Higher yields increase the opportunity cost for holding bullion, said the bullion king of India – Prithviraj Kothari.
The move higher in yields (and a corresponding strengthening of the US Dollar) brought pressure to the gold chart, and precious metals’ spot prices fell steadily throughout Tuesday’s session and into the Asian and European sessions. The pattern repeated in the morning hours of Thursday’s session, thanks to another boost to (possible) inflation expectations when the first pass at calculating growth in the US economy for Q1 of 2021 returned a very strong year-over-year increase (as expected) and the 4-week average of new jobless claims continued to fall towards 600K. After rebounding from Thursday morning’s steep losses, gold stabilized and looked strong on Friday, consolidating near $1770/oz.
In the days to come, markets will be flooded with key economic numbers coming in from the US and a lot of volatility is expected owing to these numbers, according to the bullion king. All eyes will be on the slate of what looks to be very strong macroeconomic data, including manufacturing and employment reports.
- the ISM manufacturing
- Payroll numbers are quite important.
- factory orders
- ADP nonfarm employment
- ISM non-manufacturing PMI
- jobless claims
Key U.S. data will be running hot, and gold will be closely following the market’s inflation expectations as commodities continue to surge. Generally speaking, any surprise to the upside will get inflation expectations higher. That could drive real rates lower, which would be a good catalyst for gold.
On the other hand, we are seeing a rise in gold appetite from the world’s 2 biggest consumers of gold – India and China. According to the bullion king of India, Pritviraj Kothari from RSBL, prices are going down more than 15% from a record high in August in India. Purchases in the world’s second-biggest consumer jumped 37% in the January to March period to 140 tons after slumping to the lowest in more than two decades last year, according to the World Gold Council. A combination of softening gold prices, a sharp pick-up in economic activity and the return of social activities such as weddings supported higher consumption, it said.
China too saw a steep rise in demand for the yellow metal. The release of a spike in demand has become a feature of the gold market with first-quarter sales of jewellery to Chinese women at their highest since 2015. China’s gold jewellery consumption in the first quarter stood at 119.1 tons, the highest quarterly level in seven years, according to the World Gold Council’s latest survey released on Thursday.
The three main reasons behind this rising demand for jewellery were –
- The improving economic conditions
- A slightly lower gold price and
- A sales spree related to holidays
While on one side we see the supply-demand equation, on the other side there is inflation and important US data. For now, the gold market is ignoring its perfect storm of low-interest rates, more government spending, and rising inflation expectations. However, next week could test the Federal Reserve’s policy stance that it is too early to start tapering.
Before gold can move above $1,800 constantly, the market will need to be certain that the U.S. will see persistent inflation, not just momentary. Plus, other parts of the world should begin to recover.
Analysts are warning investors that if gold can’t go up in this current environment, then look for lower prices. However, many analysts say that a retest of recent support could attract new buying momentum to the marketplace.