A strong dollar and selling pressure take gold lower

It was a combination of U.S. dollar strength and market participants bidding the precious yellow metal lower that resulted in today’s substantial decline. As of 4:07 PM EST, gold futures basis, the most active April 2021 Comex contract is currently fixed at $1677.70 after factoring in today’s decline of $20.90 (1.23%). Spot gold prices also sold off with the same strong decline. According to the KGX (Kitco Gold Index), physical gold is currently fixed at $1680.60 after factoring in today’s decline of $19.50. On closer inspection, it was dollar strength that took away $8.50 of value, with the remaining $11 decline directly attributable to market participants actively selling gold.

With the recent rise in yields on U.S. bonds coupled with a strong performance in the U.S. equity market that market participants are reluctant to put large capital expenditures into the safe-haven asset, gold. U.S. Treasuries continued to offer higher yields, with the ten-year note trading above 1.6%.

The Dow Jones industrial average gained 306 points (+0.97%) in trading today. However, the tech-heavy NASDAQ composite did lose 2.24% as the apparent rotation out of tech-related companies into financial and retail-based companies continues.

There is also a distinct correlation between the rising value of the cryptocurrency Bitcoin, which has greatly influenced the market sentiment for gold. Bitcoin has gained approximately 30% in value over the last month. This dramatic return has most definitely resulted in market participants rebalancing their portfolio in regards to the safe-haven asset class, moving the capital from their holdings in gold into a more lucrative (and volatile) asset class.

Collectively these alternative investment assets offering higher yields in the case of U.S. bonds and solid gains in many sectors of U.S. equities; when coupled with Bitcoin, it has offered market participants solid alternatives resulting in a rotation out of precious metals into these other assets. Considering that ten-year note offered by the U.S. Treasury ten-year note has very little to no downside risk, it has become a favored safe-haven asset class of choice, at least for the moment.

The U.S. dollar continues to gain strength with today’s gain of .48% took the dollar index two 92.43. Considering that it was trading just below 90.00 at the end of February, it has gained well over 2 ½% in the last nine trading days.

While the Federal Reserve continues to maintain its monetary policy, which includes keeping interest rates between zero and 25 basis points (1/4 of a percent), market participants are optimistically looking forward, anticipating that a revived economic scenario in the United States will inevitably lead to higher interest rates. This continues to be in contrast to statements made by Chairman Powell that they in no way have changed their monetary policy and are committed to keeping interest rates at their current Fed funds rate through the end of this year as well as 2022.

However, recent gains in U.S. fixed income bonds and notes, when coupled with a stronger U.S. dollar, a rising U.S. equities markets, and lastly, the strong gains in Bitcoin, have created a shift in market sentiment away from gold and into the above-mentioned investment vehicles. Gold will remain under pressure until there is a shift in market sentiment for one or more of these vehicles.

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