Strong U.S. equities, bond yields, as GDP rises putting pressure on gold

It was a combination of three related economic events that pressured gold in trading today. These events resulted in an extended trading range for gold. Gold traded to an intraday high of $1789.90 a low of $1756.60, and gold futures moved back to near on changed. As of 4:40 PM EST, the most active June 2021 Comex contract was fixed at $1772, which is the result of a $1.90 decline.

There were multiple factors that pressured gold today, the first of which was an exceedingly strong report on the gross domestic product of the United States. Today the Commerce Department released an advance estimate of the first quarter GDP for 2021. The official government website said that “Real gross domestic product (GDP) increased at an annual rate of 6.4 percent in the first quarter of 2021 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2020, real GDP increased 4.3 percent. The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency. The “second” estimate for the first quarter, based on more complete data, will be released on May 27, 2021.”

The official website said that the real increase in GDP for the first quarter of 2021 was a reflection of increases in PCE (personal consumption expenditures), nonresidential fixed investment, government spending, residential fixed investment, and state and local government spending. These expenses were partially offset by decreases in private inventory investments and exports.

Investors today turned to U.S. equities favoring the risk-on asset class, which also pressured gold. The Standard & Poor’s 500 traded to a new all-time record high of 4211.47, a net gain of 28.29 points (+0.68%). Although the Dow Jones Industrial Average did not trade to a new record high, it gained almost 0.75%, which is a net gain of 239.98 points and closed at 34,060. The NASDAQ composite gained +0.22% today and is currently fixed at 14,082.5461.

Lastly, U.S. 10-year Treasury notes gained +0.18 today and currently have a yield of 1.638%. Today’s rise in the yield of 10-year notes followed the release of the first-quarter GDP estimates. The 30-year Treasury bond gained approximately two basis points, currently yielding 2.32%.

The latest numbers indicating strong growth, as reflected in the most current estimates of GDP, set the wheels in motion for both a strong finish in U.S. equities and rising yields in U.S. bonds. Concurrently they also pressured gold prices resulting in today’s low of $1754.60.

It seems as though market participants are disregarding the recent swelling of the national debt as well as the Federal Reserve’s balance sheet, which currently stands well in excess of $7 trillion. The economic fallout from these increasingly expensive burdens on the U.S. does not seem to affect the optimism for strong economic growth in the United States.

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