Strengthening US government interest rates will keep the pressure on the gold price on Wednesday. Despite yesterday’s promising technical chart pattern, the market is currently ready to launch its sixth lower session of seven. The catalysts behind the rising government debt yield are raising expectations of further fiscal stimulus.
11:42 GMT, April Comex gold futures trades $ 1720.10, down $ 13.50 or -0.78%.
Traders also say that as long as the Fed allows government returns to remain stable or higher, gold will have a hard time creating a meaningful rally.
Last week, Federal Reserve Chairman Jerome Powell reiterated that the Fed will keep its simple monetary plans in place even ahead of a potential inflation rate in the spring in an economy stimulated by vaccines and government spending.
With that said, investors are keeping a close eye on the development of President Joe Biden’s $ 1.9 trillion stimulus package ahead of the Senate debate on the legislation this week. As I said yesterday, bullish gold traders can only hope for a smaller package with the Republicans trimming some of the fat off the bill because it will very likely pass quickly.
Gold was previously considered a hedge against inflation, but it seems to be an old school thinking because it is much easier to buy and sell government bonds. Relatively higher returns in recent times have threatened the role of gold in the financial markets as they increase the possibility of holding the asset, which does not provide interest or dividends. In addition, investors want to keep performance assets, not status symbols.
The interest rate yield is currently close to 1.4%, a decrease from last week’s highest year of 1.6%. But that could change quickly, especially with the United States scheduled to announce non-farm wages on Friday. The return can jump higher and gold can be crushed if the figures far exceed expectations.
Today’s ADP report on changes in employment outside the farm could move the gold market lower if the figure comes in well above the 202K forecast. Gold can see a modest profit if the number misses the disadvantage and if the return goes lower on the news.
In the long run, however, gold prices are likely to remain limited as long as the Fed stays the course. However, gold may see a price increase if the Fed intervenes in the bond market in an attempt to gain control over returns.
An out-of-control rise in inflation due to the huge amount of public spending can also lead to a jump in gold prices.
For a look at all of today’s economic events, check out ours financial calendar.