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Metals Stocks: Gold moves lower as surge in new home sales boosts Treasury yields

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Gold futures moved lower on Friday, as data showing a surge in new U.S. home sales prompted a rise in Treasury yields, dulling the precious metal’s investment appeal.

“Gold put in a double bottom in March and has slowly recovered since then,” Brien Lundin, editor of Gold Newsletter, told MarketWatch, referring to a chart pattern that signals a potential bullish reversal in prices. In the past week, gold has shown a “series of impressive gains as both the 10-year Treasury yield and the dollar index retreated.”

However, The U.S. Census Bureau reported Friday that new U.S. home sales occurred at a seasonally-adjusted annual rate of 1.021 million in March — the fastest pace of new home sales since 2006.

The data were “surprising enough on the positive side to send yields higher, and then gold lower,” said Lundin.

In other U.S. economic data Friday, the flash reading of the IHS Market US. composite purchasing managers index rose to a record high 62.2 in April from 59.7 in March, suggesting both the manufacturing and services sectors are recovering rapidly from the coronavirus pandemic.

Gold prices, however, did manage to find some support this week, before Friday’s decline, as investors looked to global COVID-19 hot spots and their potential to derail the global economic recovery from the pandemic.

Gold for June delivery
GC00,
-0.37%

GCM21,
-0.37%

was down $9.50, or 0.5%, to $1,772.50 an ounce on Comex, while May silver
SIK21,
-0.63%

fell 19 cents, or 0.7%, to $25.99 an ounce.

Read Global silver demand poised to rise this year; prices could jump more than 30%: report

Friday’s decline for the two precious metals shifted prices lower for the week, with gold, based on the most-active contracts, on track for a 0.3% weekly loss, while silver was down 0.4%.

Surging COVID cases in India and Japan in particular were blamed by analysts for denting expectations for a global economic recovery, pulling down Treasury yields for the week and aiding non-yielding assets such as gold.

On Friday Tokyo and Japan’s second largest metropolitan area of Osaka saw new business and consumer lockdowns imposed again to stem surging cases of the coronavirus.

For a renewed push toward $1,800 an ounce, however, the market would need to see a trend reversal in gold exchange-traded fund flows, of which there are some signs, said Carsten Fritsch, analyst at Commerzbank, in a note.

He noted that momentum in ETF outflows has already slowed, with daily average outflows in April running at 1.5 tons, compared to almost 6 tons in March.

“We expect ETF inflows and a rising gold price again in the second half of the year.,” he wrote.

“After all, the environment for gold should brighten noticeably. As the Fed will stick to its ultra-loose monetary policy for a long time, bond yields and the US dollar should ease from midyear. Thus, headwinds will turn into tailwinds,” Fritsch said.

Other arguments for a higher gold price include negative real interest rates, record high government debt, and rapidly rising money supplies, he said, with Commerzbank looking for gold to rise to $2,000 an ounce by the end of the year.

For now, however, prices are likely to see more the current “back-and forth between gold, bond yields and inflation data” going forward, said Gold Newsletter’s Lundin.

“I am confident that we’ve seen the lows last month and that gold will generally trend higher as the idea of stickier inflation takes hold among investors,” he said. “No matter what the Fed does in the long run, the size of the federal debt demands that they keep rate hikes well behind the rate of inflation. As investors increasingly understand this dynamic, they’ll increase allocations to gold.”

In other dealings on Comex Friday, May copper
HGK21,
+1.33%

rose 1.1% to $4.32 a pound, poised for a weekly rise of 3.8%.

Copper prices look to settle above the highest seen in February, which would take prices to their highest finish since 2011.

“The latest string of strong economic data suggests that demand should remain generally healthy in the months ahead, as the global recovery continues to
accelerate and supply continues to draw down,” analysts at Sevens Report Research, wrote in Friday’s newsletter.

Also on Comex, July palladium
PLN21,
+2.08%

climbed by 1.4% to $1,225.10 an ounce, trading 1.4% higher for the week. June palladium
PAM21,
+0.34%

edged up by 0.3% to $2,851.50 an ounce, looking at a weekly climb of 2.8%.

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