Gold rises as rally in United States dollar, Treasury yields hits brakes

Darnell Taylor
January 13, 2021

Ordinarily, the extra spending plans would force investors to worry about rising inflation and its detrimental effect on the U.S. dollar in a weak economy, but the currency has been supported in recent weeks thanks to rising United States yields.

Stocks on Wall Street slipped ahead of the start of an earnings season that arrives with equities at record highs, and as House Democrats introduced an article of impeachment against President Donald Trump. Platinum rose 3.1% to $1,062.83, while palladium climbed 0.2% to $2,376.57.

The pan-European STOXX 600 index lost 0.67%.

Gold prices touched a near six-week low on Monday, extending losses from the previous session, as a stronger dollar and higher US Treasury yields pressured the non-yielding bullion.

Treasury yields rose, following President-elect Joe Biden's promise last week of further "multibillion-dollar" economic stimulus.

"While the United States dollars may catch a bid on position-adjustment or profit-taking after its recent weakness, a sustained recovery will have to be accompanied by either a clear improvement in recent yield trends or a positive US growth shock", said Shaun Osborne, chief currency strategist at Scotiabank.

Yields on the benchmark Treasury note dropped to 1.110% in early trade, down from an nearly 10-month high of 1.187% on Tuesday.

Pompeo cancels final trip overseas amid tumultuous transition
Pompeo described the rules as previous administrations' attempts to "unilaterally...appease the communist regime in Beijing". Craft had been due to visit Taiwan from Wednesday to Friday, prompting China to warn that Washington was playing with fire.

Elsewhere, the hitherto soaring Australian dollar fell almost 1% to $0.7693, unmoved by another solid month of local retail sales.

The dollar fell through 104 Japanese yen to trade at 103.63 yen on Wednesday and the Chinese yuan also held gains to begin the day at a one-week high in offshore trade.

Morgan Stanley said it had moved to neutral from bullish on emerging market currencies as its forecasts had been hit and factors that kept the US dollar on the back foot may not be sustained.

At 11.55 pm on Friday, gold futures (February 2021) on MCX closed 4.10% or Rs 2,086 lower at Rs 48,818 per 10 grams.

Spot gold rose 0.2% to $1,858.56 per ounce by 0255 GMT, while USA gold futures gained 0.9% to $1,860.10.

IG Market analyst Kyle Rodda said, "the big picture is it's still a very constructive year for gold". Silver fell 1.66% to $24.95.

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