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Metals Stocks: Gold down a third session as Treasury yields move up after U.S. GDP reading

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Gold futures ended lower Thursday for a third-straight session, as U.S. Treasury yields moved up following data showing strong first-quarter growth in the U.S. economy.

The U.S. economy charged ahead since the start of the year, with gross domestic product, the official scorecard for the U.S. economy, climbing at a 6.4% annual pace in the first quarter, the government said Thursday.

Against that backdrop, U.S. yields climbed, with the 10-year rate BX:TMUBMUSD10Y up nearly 3 basis points at 1.65%. Higher yields raise the opportunity cost of holding nonyielding assets like gold.

“Gold continues to digest the large upward move in U.S. rates, and the now-prevailing consensus that inflation will rise as the economy rebounds,” said Peter Grosskopf, chief executive officer of Sprott. “We believe the primary reason for gold’s pullback is growing complacency regarding deficits and debt buildup.”  Gold futures trade slightly lower for the week so far, and have lost almost 7% year to date.

Gold’s moves Thursday also followed dovish remarks Wednesday by Federal Reserve Chairman Jerome Powell. The Fed stuck to its strategy of helping the U.S. economy with ultra-low interest rates.

Read: Fed’s Powell ‘doesn’t blink,’ and 5 other things we learned from his press conference

“The FOMC and related Powell comments are short-term neutral and long term supportive to the gold price,” Grosskopf told MarketWatch. “Basically, Powell’s comments confirmed that the Fed will continue to ‘spike the punch bowl’ for the foreseeable future.  Other markets took that as confirmation for risk on trades, while gold rests for now.”  

Gold for June delivery
GC00,
-0.30%

GCM21,
-0.30%

lost $5.60, or 0.3%, to settle at $1,768.30 an ounce on Comex. July silver
SIN21,
-0.18%

fell 3 cents, or 0.1%, to nearly $26.09 an ounce.

Following this week’s Fed policy update, there will likely be “increasing focus on Treasury auctions as the stimulus and deficits are funded,” said Grosskopf, who also added that the “need for a gold allocation in portfolios has never been greater.” 

There’s an “overwhelming consensus that massive stimulus is good for markets and economies, and that there will be no fallout,” he said. “Gold sentiment hit long-term lows within the last month as a result, which usually marks a turning point.”

Grosskopf thinks the $1,800 level for prices is “within easy reach on a single, risk-off trading day, but reclaiming the $2,000 mark would be possible “during corrections in markets — high yield, Treasurys, equities or other.”

Meanwhile, data from the World Gold Council released Thursday showed weak global demand for gold in the first quarter.

Global gold demand in the first quarter dropped from a year ago on the back of a more than 70% year-over-year decline in gold investments, according to a report from the World Gold Council released Thursday. The WGC said total world gold demand for the quarter was at 815.7 metric tons, down 23% compared with the first quarter of 2020, though it was “on a par” with the fourth quarter of 2020.

Rounding out action in Comex metals, July copper
HGN21,
-0.30%

shed 0.2% to $4.49 a pound. July platinum
PLN21,
-0.94%

shed 1.2% to $1,197.60 an ounce and June palladium
PAM21,
+0.57%

settled at $2,948.60 an ounce, up 0.6%.

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