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Gold's first trading day of August begins with a whimper

Commentaries & Views

While the undertones for gold are bullish, with lower yields on U.S. Treasury 10-year Notes and a lower dollar, it seems gold opened the trading month of August in a tepid manner. As of 4:50 PM EST gold futures basis, the most active December 2021 Comex contract is trading in a lackluster manner, down $0.70, and currently fixed at $1816.50. Today’s range was also muted, with gold trading to a high of $1823.20 and a low of $1808.20.

According to Reuters, “Traders sent U.S. Treasury yields lower on Monday on a soft manufacturing report and as they positioned ahead of government funding plans. The benchmark 10-year yield was down 5.3 basis points at 1.1856% in morning trading, continuing a pattern of declines playing out since the spring. It touched as low as 1.184%, its lowest since July 20, shortly after a report from the Institute for Supply Management showed U.S. manufacturing continued to grow in July, but at a slower pace for the second straight month.”

The U.S. dollar is currently off by just over 1/10 of a percent basis the dollar index which is currently fixed at 92.08 after factoring in today’s moderate decline of approximately 11 points.

MarketWatch reported that Pierre Veyret, technical analyst at ActivTrades, in a daily research note wrote, “In fact, this appetite for bullion comes from investors cautiously monitoring the situation in China with the price further supported by a decreasing U.S. dollar.”

Last week gold experienced a dramatic price increase on Thursday following Wednesday’s conclusion of last month’s FOMC meeting. This pushed the precious yellow metal’s price strongly higher, above its 200-day moving average last Thursday, and then traded to an intraday high above its 50-day moving average on Friday. However, Friday’s trading activity gave back roughly half of its almost $30 gain from Thursday.

Globally the Delta variant of Covid-19 continues to be troublesome, with many countries experiencing major upticks in new cases being reported. Last week new cases of Covid-19 in the United States broke above 100,000 cases per day. The state of Louisiana today reported that it expects Covid 19 hospitalizations to reach their highest level in the pandemic on Tuesday, with close to 2,000 patients hospitalized today.

According to CNN News, “The Delta variant is wreaking havoc through much of the U.S., and an internal CDC document shows it spreads as easily as chickenpox.” On Sunday, Dr. Anthony Fauci, the top infectious disease expert in the United States, warned that more “pain-and-suffering” is on the horizon as the Delta variant of Covid-19 climbs.

This concern over the rising number of new infections from the Delta variant that Chairman Powell addressed during his press conference last week supported the current extremely accommodative and dovish monetary policy of the Federal Reserve. The Fed continues to keep interest rates between zero and 25 basis points (1/4%), as well as their monthly purchases of mortgage-backed securities and U.S. debt, adding $120 billion in assets each month to their balance sheet.

Although you would not know what from today’s trading activity and price movement in gold, the continued accommodative monetary policy of the Fed could pressure yields on U.S. debt instruments lower as well as the U.S. dollar. These factors should continue to create bullish undertones for gold prices.

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Wishing you, as always, good trading and good health,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.