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(Kitco News) – The precious metals market was hit hard on Friday as technical selling pressure accelerated the decline across the board.
Gold fell more than $ 50, while silver lost $ 1.30 on Friday as investors digest the rise in US Treasury yields and the rise in the US dollar.
The 10-year Treasury yield surpassed 1.6% overnight, the highest level in a year. Meanwhile, the US dollar climbed higher, with the US dollar index last trading at 90.89, up 0.83% on the day.
For gold, this peaked with a drop to new eight-month lows. April’s Comex gold futures traded last at $ 1,725.30, down 2.82% on the day. Silver also fell nearly 5% on the day, with Comex futures from last March to $ 26.32, down 4.77% on the day.
“Gold continues to face a huge headwind from the bond market. Ten-year US Treasury yields climbed yesterday to peak at 1.6%. They were still only 1.3% at the start of the week. An increase in yields of around 30 basis points. in just a few days is a bitter pill to swallow for gold, because it does not in itself earn any interest, “said Carsten Fritsch, analyst at Commerzbank.
“The main problem for gold here is the lack of interest,” TD Securities strategists said. “The Fed’s reactive, rather than proactive, approach to the steepening of the yield curve is causing real rates to rise sharply, and while the safe haven properties of the yellow metal may offer support, the “Gold as a safe haven doesn’t. This bodes well for investment flows into gold,” strategists said on Friday.
Until the Federal Reserve signals that it will consider controlling the yield curve, the price of gold may continue to suffer.
“The Fed is testing the rate market, which in turn may force the market to test very high asset valuations, which in turn may put pressure on the Fed to revert to a proactive approach. and curb steepening. Yet this is unlikely until real rates rise enough to hurt gold. We are now heading towards that pivot point, but it is still early days, “added the strategists.
For whatever reason, the market is still not convinced that the Fed will maintain its ultra-accommodative monetary policy in light of rising yields, Fritsch added.
“What’s remarkable is that bond yields continue to climb sharply despite Fed Chairman Powell making it clear this week that the Fed will maintain its ultra-accommodative monetary policy for some time to come. the market doesn’t believe it. the Fed, or it fears the Fed is making a policy error and underestimating rising inflation, “he said on Friday. “If that turns out to be the case, then gold would rise all the more sharply. That said, things are looking pretty grim for gold in the near term.”
“If this trend continues, gold will record its sixth monthly loss of the last seven,” said FXTM market analyst Han Tan.
“With rising Treasury yields dealing a heavy blow to the unproductive precious metal. Bullion’s year-to-date losses stand at 7.12% at the time of writing,” Tan said. “Despite the threat of rising inflation, investors are clearly prepared to ditch gold in favor of other assets that may better benefit from the economic recovery, as well as the ensuing price overshoot.”
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