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Price pressure on gold from rising bond yields, technical selling

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(Kitco News) - Gold futures prices are solidly lower and near daily lows in early U.S. trading Wednesday, giving back some of the good gains posted Monday. Rising government bond yields are bearish for the precious metals markets at mid-week as the benchmark U.S. Treasury note is presently yielding 1.4%, which is a one-year high. Bulls are also struggling from a technical perspective amid a pesky price downtrend in place on the daily bar chart. Still, wobbly U.S. stock indexes and a weaker U.S. dollar index this week, combined with rallying crude oil prices that hit a 13-month high Tuesday, should keep a floor under the gold and silver markets. April gold futures were last down $15.50 at $1,790.40 and March Comex silver was last down $0.108 at $27.575 an ounce.

Global stock markets were mixed overnight, with Asian shares mostly down and European shares mostly up. A big government tax hike on trading shares in Hong Kong hit markets there and in London. U.S. stock indexes are pointed toward slightly higher openings when the New York day session begins. This week marks the one-year anniversary of markets starting to get hit by the Covid-19 pandemic.

The marketplace pretty much took in stride Fed Chairman Jerome Powell’s testimony on U.S. monetary policy to the Senate Banking Committee on Tuesday. He speaks to lawmakers again today. In his testimony Tuesday, Powell said the U.S. central bank is committed to a very accommodative monetary policy as long as the economy remains negatively impacted by the pandemic. “The economy is a long way from our employment and inflation goals,” he said. Powell said he expects a temporary rise in U.S. inflation, maybe over the next year, but not larger or persistent price increases, adding that he believes the big stimulus packages from the U.S. government will not cause problematic price inflation. As for rising bond yields recently, Powell said that is just “a statement of confidence” for an improving U.S. economic outlook.

The “reflation trade,” whereby notions that inflationary price pressures will rise and thus support upside price action in raw commodity futures markets, is gaining in popularity recently—or at least in marketplace discussions. Longtime market analyst Jeff Wilson of Pro Farmer has pointed out something which has apparently flown under the radar screen of much of the marketplace, but yet is still a significant development. The CME Group has successfully lobbied the Commodity Futures Trading Commission to raise for many markets (and some dramatically) the speculative futures contract trading limits that any one trader can hold, effective March 15. For example, in silver futures the limitation on one trader holding spot-month futures contracts was doubled from 1,500 to 3,000. Gold was left unchanged at 6,000 contracts. So what does this mean? It suggests to me that CME Group officials are suspecting much bigger trading volumes are coming in many futures markets later this year as the world comes out of the pandemic and amid a global financial system awash in cash from government central bank stimulus programs. This is potentially very good news for raw commodity market bulls and suggests there could be much bigger participation in trading raw commodity futures markets from the long side in the coming months, including gold and silver.

The key “outside markets” today see Nymex crude oil futures prices up and trading around $62.00 a barrel. The U.S. dollar index is slightly weaker early today as the bulls have faded recently. The yield on the U.S. 10-year Treasury note is presently fetching 1.4%.

U.S. economic data due for release Wednesday includes the weekly MBA mortgage applications survey, new residential sales and the weekly DOE liquid energy stocks report. Several Federal Reserve officials are also slated to speak today.

Live 24 hours gold chart [Kitco Inc.]

Technically, the February gold futures bears have the overall near-term technical advantage amid a six-week-old price downtrend in place on the daily chart. Bulls’ next upside price objective is to produce a close in April futures above solid resistance at $1,856.60. Bears' next near-term downside price objective is pushing futures prices below solid technical support at the February low of $1,759.00. First resistance is seen at $1,800.00 and then at this week’s high of $1,815.20. First support is seen at this week’s low of $1,778.60 and then at the February low of $1,759.00. Wyckoff's Market Rating: 3.0

Live 24 hours silver chart [ Kitco Inc. ]

March silver futures bulls have the overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at the February high of $30.35 an ounce. The next downside price objective for the bears is closing prices below solid support at $26.00. First resistance is seen at the overnight high of $28.005 and then at this week’s high of $28.425. Next support is seen at this week’s low of $27.33 and then at $27.00. Wyckoff's Market Rating: 6.5.

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