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Gold rises aided by dollar weakens, lower yields and dovish central banks worldwide

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A combination of factors has contributed to gold prices continuing to rise now for the fourth consecutive day. The low last week was $1677. Gold prices have since risen to almost $70 in just about a week. In the last four trading days the U.S. dollar has been in a defined downtrend after trading to a high of 93.50 on March 31 and settling today at 92.29, a decline of 1.12% over the last four trading days.

Concurrently yields on U.S. 10-year Treasury notes have also fallen and are currently yielding approximately 1.657%. As of 5:15 PM EST gold futures basis, the most active June 2021 Comex contract is currently fixed at $1744.40 after factoring in today’s gains of $15.60 (+0.90%).

Spot gold also had respectable gains today. According to the KGX (Kitco Gold Index), physical gold is currently bid at $1743.60 after factoring in today’s gains of $15.10. On closer inspection, dollar weakness provided $5.50, with the remaining gains of $9.60 directly attributable to market participants bidding the precious yellow metal higher.

Silver also gained dramatic ground today, with the most active May 2021 Comex contract gaining $0.43 (+1.73%) and is currently fixed at $25.21. As in gold, the vast majority of today’s gains are directly attributable to market participants actively buying. Spot silver is currently fixed at $25.15, after factoring in today’s $0.31 gain. According to the KGX, dollar weakness accounted for only eight cents of today’s gains, with the remaining $0.23 a direct result of market participants actively buying the precious white metal.

Another primary factor currently influencing precious metals' price is statements made by the European Central Bank today. According to MarketWatch, “Officials at the International Monetary Fund on Tuesday backed the Federal Reserve’s decision to be patient about pulling back its easy monetary policy stance despite the improved outlook for the U.S. economy.”

In an article penned by Greg Robb titled “IMF facts go-slow Fed,” he cited that the latest global financial stability report underscored the need for the monetary policy to remain accommodative. In fact, the Federal Reserve continues its extremely accommodative monetary mandate. It continues to add $120 billion monthly to its asset balance sheet and continues to keep interest rates between 0 and ¼%.

Gita Gopinath, the IMF’s chief economist, was asked if the Federal Reserve should change its current policy or not. He said that the “Fed’s policy of moving gradually is consistent with its mandate.”

In other words, central banks worldwide will continue to provide a monetary policy that will increase the probability of a robust worldwide economic recovery. More importantly, both the IMF and the Federal Reserve have pledged to continue to be transparent and not change their current mandate without giving sufficient advance warning. These actions by central banks worldwide should continue to devalue their major currencies and, as such, provide bullish market sentiment for the precious metals.

Wishing you, as always, good trading and good health,

Gary S. Wagner - Executive Producer