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Gold trades to $1760.30 before slightly recovering

Commentaries & Views

Gold pricing continues to be affected by rising yields in U.S. 10-year Treasury notes. Market sentiment continues to be under the assumption that as early as mid-November the Federal Reserve will begin to taper their asset purchases of $120 billion monthly. The most recent news is the pace at which they will taper. According to the statement released last week of the last FOMC meeting, they plan to reduce their monthly purchases by $15 billion each month.

The Fed's purchases of assets are split between U.S. debt ($80 billion) and MBS (mortgage-backed securities) purchases of $40 billion. In other words, a 2 to 1 split between those two asset classes. That means that the most likely scenario is that each month they would taper $10 billion from their purchases of treasury notes, and taper their MBS purchases by $5 billion.

Although it is the raising of real interest rates by the Federal Reserve which has not been scheduled to begin at the earliest in 2022, it has been the reduction of asset purchases and the knowledge that the interest rate left off will begin shortly that has shaped current market sentiment bidding yields higher on U.S. debt instruments.

Today the U.S. 10-year Treasury note gained 0.021 points and is currently yielding 1.596% in interest returns. Many analysts have gone on record saying that as long as yields continue to rise then the headwinds created from that will continue to pressure gold to lower pricing.

The dollar was relatively neutral today providing not even fractional headwinds as it gained 0.32 points, or +0.03%, and is currently fixed at 93.97. This is the first occasion that the dollar has gained in the last four trading sessions. On Wednesday, October 13 it opened just above 94.50 and by the close of the trading session finished at 94.07. This was followed by Thursday and Friday's nominal moves which both resulted in lower pricing. Today the dollar traded to a higher high and a higher low, but only closed fractionally above Friday's close.

The wildcard that currently could be highly supportive and bullish of gold is a possible sell-off in U.S. equities. MarketWatch quoted OANDA analyst Craig Erlam saying, “Unless markets start to price in bad news for the economy and stock markets, which may be a rational next step if policymakers insist on tightening even as the recovery remains sluggish and downside risks significant."

Lastly, it seems as though capital that would have formally used gold as a speculative vehicle or inflationary hedge has shifted to Bitcoin as it continues to rally approaching its all-time high. Currently, cash Bitcoin prices are fixed (according to KU Coin) at $61,750, after factoring in today's gain of 2%. However, Bitcoin futures gave up 0.72%, or $450, and are currently fixed at $61,625.

With a new offering of a futures-based Bitcoin ETF tomorrow there could continue to be accelerated excitement in Bitcoin. One thing that I must express is that if you thought there was intrinsic volatility in Bitcoin, which there certainly is, hold your hats on tight if you begin to venture into an electronically traded bitcoin fund based on bitcoin futures. In the case of a bitcoin futures ETF, you must add the volatility intrinsic to Bitcoin to the tremendous leverage offered by a futures contract.

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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.