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

Andrew Cummings
January 13, 2021

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.

The benchmark 10-year yield climbed as many as 5.5 basis points Tuesday to a high of 1.187%, a level last seen on March 19, the same day California became the first US state to issue stay-at-home orders slowing the spread of COVID-19.

The Australian and New Zealand dollars rose from one-week lows, lifting the Aussie above 77 cents again to sit at $0.7680 and the kiwi over 72 cents to trade at $0.7226.

Last week, gold prices corrected sharply on cues from the global market where traders increased their short position as seen by the open interest.

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.

Investors maintained their bearish stance on the greenback.

AgenciesThe euro steadied at $1.2208 and dollar index was steady at 89.991 on Wednesday after falling 0.5 per cent on Tuesday.

"We think that there are really two main reasons for that (dollar not weakening now)", said Calvin Tse, North America Head of G10 FX at CitiFX.

Benchmark 10-year Treasury yields declined after recording 10-month highs, it dragged the dollar low. With U.S, yields shooting higher, it really does two things: "1) it encourages more inflow into the US buying USA rate products and 2) very sharply moving yield levels tend to not be good for high beta EM FX".

Investors expect that result to usher in huge sums in government borrowing to fund big-spending stimulus plans and have figured that higher US rates might make the dollar more attractive.

Several U.S. Federal Reserve officials see the economy recovering strongly if the vaccinations gather pace, but that also invokes questions about the outlook of central bank's monetary policy.

Gold futures on MCX (Multi Commodity Exchange of India) opened slightly higher at Rs 49,320 per 10 grams after closing with marginal gains at Rs 49,300 on Monday at 11.55 pm, post the announcement on impeachment. Fed Chair Jerome Powell is due to speak on Thursday.

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