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Metals Stocks: Gold settles at lowest in over a week as dollar firms, investors weigh Powell-Yellen testimony

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Gold futures settled with a loss on Tuesday, as strength in the U.S. dollar contributed to the metal’s price settlement at the lowest in more than a week.

Gold investors showed little reaction to the first of two days of congressional testimony from Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen on the health of the U.S. economy as America wrestles with the impact of the COVID-19 pandemic.

Powell and Yellen “appear to be working closely, and in good coordination, to allow moderate inflation, but also not let it get too robust or out of control,” Jeff Wright, chief investment officer at Wolfpack Capital, told MarketWatch. The Fed “appears comfortable with the recent rise in 10-year yields as a tool to temper inflationary pressures over the long term. This has kept a lid on gold.”

See: Powell, Yellen face House panel amid concerns over deficit, inflation

However, “given the amount of stimulus, gold should strengthen,” Wright said. Higher spending can pressure the dollar, providing support for dollar-denominated prices of gold. The Biden administration is mulling a $3 trillion package of spending on infrastructure, education and fighting climate change.

For now, Wright said gold is currently “range bound” at $1,600 to $1,800, but “with a bias towards downside in short term.”

Gold for April delivery
GCJ21,
-0.66%

GC00,
-0.66%

 shed $13, or nearly 0.8%, to settle at $1,725.10 an ounce, following a 0.2% decline on Monday. That was the lowest settlement since March 12 for a most-active contract, FactSet data show.

Meanwhile, May silver
SIK21,
-2.19%

 
SI00,
-2.19%

lost 54 cents, or 2.1%, to end at $$25.23 an ounce, the lowest since January, after declining 2.1% in the previous session.

Optimism about the speed of the recovery from the pandemic and the possibility of rising inflation have left investors skeptical about the Fed’s plans for interest rates and bond purchases. That has made Powell and Yellen’s testimony a more highly anticipated event as investors reassess their expectations for a fast and widespread global recovery.

During Tuesday’s testimony, Powell said he doesn’t believe any surge in inflation this year will be large or persistent. He also said the Fed has the tools to deal with higher inflation.

A number of additional Fed Governors were also speaking on Tuesday, with Robert Kaplan of the Dallas Fed early Tuesday painting “a more hawkish tone, indicating bond yields are not finished rising in the short term,” said Wright. This alone regarding bond yields weakened gold and strengthened the U.S. dollar in Tuesday dealings, he said.

The the majority of Fed officials don’t see a benchmark interest rate hike until after 2023. The latest Fed “dot plot” of benchmark interest rate forecasts showed four officials expect the first hike next year and seven see lift-off by 2023. Kaplan said he was one of those four.

Read: Dallas Fed’s Kaplan says he sees first interest rate hike next year

Trading in the precious metals came as the 10-year Treasury note yield
TMUBMUSD10Y,
1.648%

was at 1.64%, off 5 basis points from Monday. Shrinking yields can make gold comparatively more attractive set against precious metals that don’t offer a coupon.

“Even though we have seen a reprieve in Treasury yields over the last few days, we remain in a rising interest rate environment and that is negative for gold and silver,” Michael Armbruster, managing partner at Altavest, told MarketWatch. ” We probably need to see the equity markets break before we get a policy change from the Fed…that could change the price trajectory for precious metals.” 

“For gold bugs, it is likely to remain a tough market for the next three to six months,” he said.

A strengthening of the U.S. dollar created headwinds for bullion Tuesday, making the dollar-pegged asset more expensive for overseas buyers. The dollar was up 0.6%, as measured by the ICE U.S. Dollar Index
DXY,
+0.61%
.

Wright said he is “still bullish on gold rebound over the longer term if a mega $3 trillion bill gets through Congress but in immediate term, gold is being influenced by 10-year bond yields” and the anticipated rise in interest rates sooner than most people expected.

Among other Comex metals, May copper
HGK21,
-1.86%

lost nearly 1.5% to $4.08 a pound. April platinum
PLJ21,
-0.73%

shed 0.8% to $1,174.60 an ounce, while June palladium
PAM21,
+0.28%

added 0.7% to $2,617.30 an ounce.

Project Syndicate: The bond market’s QE Catch-22

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