Traders continue to offer higher yields, despite the Federal Reserve’s statement

“There is something going on here, which is not exactly clear” – Stephen Stills

Immediately after the conclusion of yesterday’s FOMC meeting, we saw the gold stage rise sharply, moving from virtually unchanged to closing double-digit highs. Many analysts interpreted the gains as a direct result of the Federal Reserve’s statement, which included the most current “point chart”, indicating that interest rates are likely to remain where they are until 2023.

However, in foreign trade, gold continued to rise when it opened in Australia on Thursday morning, but then began to be sold under pressure when it moved to Hong Kong and London. The main events that caused the weakening of gold prices were the strength of the dollar and higher yields in the US, Treasury notes. In fact, the 10-year Treasury yield gained more than nine basis points, moving the current return to 1.73%. An absolute negative factor for gold to put downward pressure on the metal.

This signals that even with President Powell’s definitive tone once again conveying the Federal Reserve’s intention to keep interest rates where they are for a long time. While market participants are looking at good economic data, they nevertheless continued to offer higher yields in anticipation of a rate hike, disregarding the Federal Reserve’s point chart as well as Jerome Powell’s statements during the conference. yesterday’s press.

However, by closing negotiations on the New York gold base, the more active April 2021 Comex contract gained significant ground. And although it closed well at its high, which was $ 1,754, it gained $ 7.50, or 0.43%, and is currently set at $ 1,734.60. At the same time, the increase in gold occurred with the extreme strength of the dollar, which also rose approximately 0.045%. This means that if the dollar were neutral today, we would have seen an increase in gold by approximately $ 15.

Another interesting aspect was the negative correlation in terms of price variation between spot gold or Forex and gold futures. Although spot gold is still slightly above the price of the April futures contract, the net change for the day was a drop of nine dollars in cash, compared to a positive gain of $ 7.50 on the gold futures contract. According to the KGX (Kitco Gold Index), today’s $ 9.00 decline is a combination of dollar strength and selling pressure. The vast majority of today’s change was due to the strength of the dollar, which accounted for $ 7.85 of the decline, with the remaining $ 1.15 resulting in spot gold at $ 1736.50.

At least for today, gold futures were able to overcome the strength of the dollar and the higher yields of US Treasury bonds, which reached the highest increase in 14 months. Many analysts believe that unless the Fed intervenes to address the gap between short and long-term bonds and note that the yield on the 10-year note can be traded by up to 2%. That is just 0.02% out of pre-pandemic income, which was 2.2%.

There is no doubt that analysts, market participants and traders alike are still shining with the statement released yesterday and working with statements made by President Powell, not only focusing on words, but on behavior. Although he has been emphatic about keeping interest rates close to zero for at least two years, it seems that market sentiment does not agree with this assessment. Some analysts believe that if solid economic data continues to emerge, it will force the Fed to raise rates earlier than anticipated.

This is contrary to the Federal Reserve’s statements and determination not to make the same mistakes of 2008 by raising rates too quickly. In President Powell’s words, it will be the pandemic that will dictate the action of the Federal Reserve, and they will not act in a way to prevent a full recovery in the quickest period of time.

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Wishing you as always, good business,