Gold prices fell nearly 2% on Tuesday (March 30) on the back of a stronger dollar and rising Treasury yields, while hopes of a faster economic recovery further dampened demand for safe-haven gold.
Spot gold closed at $1685.29 an ounce, down $26.91, or 1.57%, after hitting its lowest level of $1678.55 an ounce since March 8, down nearly $36 from a daily high of $1714.46.
COMEX April gold futures closed down nearly 1.7% at $1683.90 an ounce.
The White House is expected to unveil a $2.25 trillion jobs and infrastructure plan on Wednesday, which could be the cornerstone of President Biden's economic agenda, the Washington Post reported on Tuesday, citing two people familiar with the matter.
Biden's plan will include about $650 billion to rebuild U. S. infrastructure, such as roads, bridges, highways and ports, people familiar with the matter said. The plan will also include $400 billion for care for the elderly and the disabled, $300 billion for housing infrastructure, and $300 billion for reviving U. S. manufacturing. It also includes hundreds of billions of dollars in major investments such as supporting the country's Electroweb, implementing the country's high-speed broadband and revamping the country's water supply system to ensure clean drinking water, according to people familiar with the matter.
People familiar with the matter, who spoke on condition of anonymity to disclose internal discussions, warned that White House officials were still making final adjustments to the plan and that details could change.
White House Press Secretary Pusaki (Jen Psaki) said the proposal would be paid for by adding new taxes, especially for businesses, and seek to largely overturn former President Donald Trump's 2017 tax law, according to these people familiar with the matter. The plan will also include about $400 billion in clean energy credit and $2.25 trillion in new spending.
Benchmark 10-year Treasury yields rose to a 14-month high, boosted by hopes of economic growth and higher inflation ahead of President Joe Biden's trillions of dollars infrastructure plan.
"if Treasury yields continue to rise, it does provide some good support for the dollar and push down gold prices," said Edward Moya, senior market analyst at OANDA.
While gold prices may face some pressure in the short term, investors who price inflation concerns could "eventually trigger a gold buying spree", Moya added.
The dollar index jumped to a more than four-month high, making dollar-denominated gold more expensive for holders of other currencies.
Higher Treasury yields threaten gold's attractiveness as a hedge against inflation because it increases the opportunity cost of holding gold, which has no interest return.
From a technical point of view, the price of [gold] is operating at a key level of $1700. A key support level is $1670, a recent low, while the overall outlook for gold remains moderately bearish, "Carlo Alberto De Casa, chief analyst at ActivTrades, said in a report.
For other precious metals, spot silver fell 2.55% to $24.03 / oz, spot platinum fell 1.67% to $1159.48 / oz, and spot palladium rose 1.82% to $2586.82 / oz.
Analysts say expectations of persistent supply shortages are driving palladium prices as demand for the automated catalyst rises.
Fundamentals favorable factors
1. Dr. Rochelle Wallensky (Rochelle Walensky), director of the Centers for Disease Control and Prevention, said at a news conference on Monday that the United States is facing a "impending doomsday" as daily confirmed cases of COVID-19 begin to rebound, which could lead to more people going to hospitals, even if vaccination is accelerated nationwide. A counterattack such as the novel coronavirus epidemic will help boost demand for gold.
Fundamental negative factors
The dollar index continued its rally on Tuesday, rising 0.39% to close at 93.29, with an intraday high of 93.35. The rise in the dollar put pressure on dollar-denominated gold.
2. The yield on the benchmark 10-year Treasury note jumped to 1.776% on Tuesday, trading near that level for the first time since January 2020. Yields on 10-year bonds have climbed 81.87 basis points since the start of the year. That was the biggest increase since the fourth quarter of 2016, when Trump won the presidential election and yields rose 84 basis points. Rising US bond yields will put pressure on gold.
3. Biden announced that he would expand vaccination coverage in the United States in the next three weeks. It is estimated that by April 19, 90 percent of American adults will be eligible for vaccination, and 90 percent of the population will live within five miles of the vaccination site. Novel coronavirus vaccination will help contain the epidemic and promote economic recovery as soon as possible, which is not conducive to the safe-haven demand for gold.
Outlook for the future
1. "Treasury yields have soared again, coupled with a stronger dollar, putting pressure on gold," said Wenyu Yao, senior commodity strategist at ING.
2. "it is becoming increasingly clear that a strong dollar is the main culprit behind the fall in gold prices. Encouraging progress on vaccines in the US has boosted appetite for the dollar by boosting hopes of a faster recovery in the US economy, "said Lukman Otunuga, a senior research analyst at FXTM. If the dollar continues to rise in the coming week, this could drag down gold prices.
Daniel Pavilonis, a senior commodities broker at 3.RJO Futures, said gold's only hope was to start to get rid of its inverse relationship with yields. "maybe we can start to get rid of this correlation, that is, if interest rates rise, the price of gold must fall. If we can deviate from this by announcing Biden's new infrastructure package, it will be good for gold. When we see inflation, it's time to buy gold. "
