Hawaii Six O - Gary Wagner
Gold stages a dynamic recovery taking prices back above $1700
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
If you recall from yesterday’s article, I spoke about the fact that gold was facing selling pressure due to multiple asset vehicles directly competing with the investment dollars typically earmarked for that safe-haven asset (gold). Almost like the proverbial salmon swimming upstream, it is a difficult and grueling task; however, it is a task that can be accomplished.
I ended the article by saying; Recent gains in U.S. fixed income bonds and notes when coupled with a stronger U.S. dollar, a rising U.S. equities markets, and lastly, the strong gains in Bitcoin, have created a shift in market sentiment away from gold and into the above-mentioned investment vehicles. Gold will remain under pressure until there is a shift in market sentiment for one or more of these vehicles.
That is exactly what we saw occur in the financial markets today, a dramatic shift in both the value of the U.S. dollar and concurrently a drop in yields from the U.S. Treasuries’ 10-year note. As of 4 PM, EST gold basis its most active April 2021 Comex contract is currently trading up $35.20, a gain of 2.09%, and fixed at $1712.90. Dollar weakness did contribute some tailwinds in today’s dramatic $35 rise in gold futures. However, dollar weakness only accounted for approximately 25% of today’s move. The dollar index gave up a little over 38 points, a net decline of 0.42%, and is currently fixed at 91.95. With gold gaining just over 2%, simple math reveals that dollar weakness was only partially responsible for today’s gains. The vast majority of today’s strong price increase can be directly attributed to a shift in market sentiment.
According to the KGX (Kitco Gold Index), spot gold gained $33.10 in trading. Of today’s gains, a total of 0.47%, or $7.90, is directly attributable to dollar weakness. The remaining gains of $25.20, or 1.50%, is the result of a shift in market sentiment resulting in traders bidding the precious yellow metal higher.
Today’s decline in U.S. treasury yields might be signaling that market participants are heeding to the Federal Reserve’s current monetary policy. This policy includes keeping interest rates between zero and 25 basis points (1/4 of a percent) for the remainder of this year and most likely into 2022. The recent activity taking yields higher while correct in reflecting optimism that we are closer to the end of the pandemic could be the result of realizing that the timeline to achieve economic recovery will not be short. Many economists predict that a full-scale recovery in the United States could take a minimum of two years. While we are seeing the first real signs of recovery, we must acknowledge that a recession created by the pandemic is much more severe than a recession created by the banking crisis in 2008. The recovery of the 2008 financial crisis took well over two years before we saw the light at the end of the tunnel.
It will take much longer than that to begin to tackle the increased budget deficit and national debt after spending $4 trillion in fiscal stimulus last year and at least an additional $1.9 trillion if the president’s proposal is approved in Congress. As such, the road to recovery will not occur overnight, and the economic hardship that will follow due to our vast expenditures will take even longer.
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Wishing you, as always, good trading and good health,