Hawaii Six O - Gary Wagner
Powell and Yellen begin their two- day congressional testimony
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Today both Chairman of the Federal Reserve Jerome Powell and the secretary of the United States Treasury Department Janet Yellin began a two-day congressional testimony. In short, their testimony resulted in dollar strength which was the primary factor taking gold prices lower. As of 5 PM EST gold futures basis, the most active April 2021 contract is currently fixed at $1725.50, after factoring in today’s decline of $12.50 (-0.72%). Simple math determines that only 0.10% was attributable to market participants selling the precious yellow metal, with the remaining decline directly attributable to a strong dollar. The U.S. dollar closed higher as the dollar index gained 62 points, or 0.68%, and is currently fixed at 92.365.
Silver pricing was hit much harder today, with the most active May 2021 contract currently fixed at $25.095, which is a decline of 2.63%. This means that the vast majority of today’s decline in silver can be directly attributed to market participants actively selling the precious white metal.
This also can be clearly illustrated when we view the KGX (Kitco Gold Index). In the case of spot gold, the KGX is currently fixing the price at $1727.20, which is a net decline of $12.10 on the day. Of the $12.10 decline, dollar strength contributed $10.40, with the remaining decline of $1.70 attributable to selling pressure. Silver’s loss, however, was mainly due to selling pressure which resulted in today’s 2.60 % decline. The KGX is currently fixing spot silver at $25.01, which is a net decline of $0.73 per ounce. Selling pressure accounted for 2.24% or $0.58, with the remaining $0.15 decline directly attributable to dollar strength.
One of the primary topics that were discussed during the first day of testimony was the health of the U.S. economy, which has seen a tremendous contraction due to the
Covid-19 global pandemic.
The disparity between current market sentiment by market participants, the Fed, and Treasury is the optimism regarding how quickly the United States will recover from the pandemic as well as the real possibility of rising inflation which has led to skepticism regarding the Federal Reserve’s current monetary policy of keeping interest rates (Fed funds) between zero and 25 basis points (1/4%). This optimism has led to rising yields in U.S. treasury 10-year notes, which are currently fixed at 1.627%
According to MarketWatch, Michael Armbruster, managing partner at Altavest, told the publication, "Even though we have seen a reprieve in Treasury yields over the last few days, we remain in a rising interest rate environment, and that is negative for gold and silver. We probably need to see the equity markets break before we get a policy change from the Fed…that could change the price trajectory for precious metals."
He also added that "For gold bugs, it is likely to remain a tough market for the next three to six months."
On a bullish note, he spoke about the long-term prospects of gold pricing, citing that he is "still bullish on gold rebound over the longer term if a mega $3 trillion bill gets through Congress but in immediate term, gold is being influenced by 10-year bond yields." He believes that this could cause a rise in interest rates sooner than most people expected.
We have seen gold and silver both being subjected to selling pressure created by a number of factors. These include dollar strength, rising yields in Treasury notes, as well as recent rebalancing to favor U.S equities over safe-haven assets.
The real question becomes as to whether or not market participants are correct in their more optimistic view of a recovery than the Federal Reserve.
If, in fact, they have correctly predicted a much faster recovery than the Federal Reserve believes, then we could see both gold and silver continue to trade under pressure. However, if the market sentiment is ahead of itself and overly optimistic, we would see a return to a bullish demeanor in both gold and silver
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Wishing you, as always, good trading and good health,