Gold | The Gold Forecast

Gold

MOST RECENT REPORT:

Bond Yields Surge lead to a significant sell-off in financials and precious metals

February 25, 2021 - 7:04pm by Gary Wagner

Video section is only available for
PREMIUM MEMBERS

In what was a frenzy of selling pressure, market participants bid U.S. equities, and the entire precious metals complex substantially lower in trading today. The hardest-hit stock indexes today were undoubtedly the NASDAQ composite and the Russell 2000. The NASDAQ composite experienced its worst trading day in four months, giving up
– 3.45%, or 460 points, to close at 13,138.5143.

The Dow Jones Industrial Average recovered slightly from the intraday low in which the Dow traded roughly 650 points lower. The net result of selling pressure in the Dow was a drawdown of - 1.75%, or 559.85 points taking that average to 31,402.01. The S&P 500 lost 2.45% or a decline of 95.18 points, with that index closing at 3829.25.

The precious metals complex lost significant ground, with gold futures losing $25.80, or - 1.44%, with the most active April 2021 Comex contract closing at $1772.90. Silver also had a significant decline of -1.85% or $0.51.4, with the March 2021 Comex contract closing at $27.345. Platinum futures also felt the selling pressure losing 2.68%, or $33.70 on the day, with the most active April 2021 Comex contract currently fixed at $1224.20.

The underlying event that led to the mass-selling frenzy that occurred today was rising yields in U.S. bonds. The 10-year Treasury note traded to its highest value in a year.

According to MarketWatch, "A rise in bond yields, with the 10-year Treasury note TMUBMUSD10Y, 1.519% advancing to above a psychological threshold at around 1.5%, has put pressure on stocks and gold, forcing investors to reassess the relative value of owning either asset against the backdrop of richer rates from risk-free Treasuries."

There is a contradiction between the recent rise in U.S. bonds and note yields and the Federal Reserve's current mandate to maintain interest rates between zero and 25 basis points throughout 2021 and into 2022.

The critical difference between investors' market sentiment and the Federal Reserve's current mandate is the timeline in which traders versus the Federal Reserve believe it will stabilize the economy. The Federal Reserve remains more cautious and has vowed to keep interest rates exceedingly low. However, market participants are more bullish in terms of the timeline and have been bidding yields on bonds and notes higher.

According to Reuters, members of the Federal Reserve "are shrugging off the surge in longer-term U.S. government bond yields as a sign of growing optimism about the economy, which could pick up steam as more people receive vaccinations against the coronavirus." The report also cited that "Fed officials said the increase in yields is a reflection of the confidence that a robust economic recovery is on the horizon for the second half of the year, as more vaccines are distributed and with more fiscal stimulus likely on the way."

The Kansas City Fed President Esther George told farm executives and a virtual event today that, "Much of this increase likely reflects growing optimism in the strength of the recovery and could be viewed as an encouraging sign of increasing growth expectations."

The majority of Federal Reserve members believe that the recent rise in bond yields does not warrant a central bank response.

The Federal Reserve will continue its current course and mandate of maximum employment by keeping interest rates low and the continued purchase of $120 billion a month in government bonds and mortgage-backed securities. This will continue until the economy is much stronger and headed towards recovery to pre-pandemic days.

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

Gary S. Wagner - Executive Producer

Trade Alerts and Market Forecast section is part of PREMIUM SUBSCRIPTION

Performance

Since 2010 The Gold Forecast has been delivering profitable results. Each trade, each buy and each sell signal is documented by archived videos. Created daily for investors and traders of all levels, The Gold Forecast gives you an edge in trading the market.

Previous Gold Reports:

Daily Report: February 24, 2021 - 7:02pm

Gold futures traded to an intraday low of $1782.20 before recovering, closing just above $1800. As of 4:44 PM EST, the most active April 2021 contract of gold futures is currently fixed at $1802.90, which is a net decline of  $3.00  on the day. In terms of a percentage drawdown today, it was truly fractional, with gold giving up 0.015%. However, silver was able to continue to gain value... View report

Daily Report: February 23, 2021 - 5:56pm

The chairman of the Federal Reserve, Jerome Powell, today began his testimony to the Senate Banking Committee in regards to the Fed’s current monetary policy. In his first day of testimony, he underscored both the positive improvements in the economy, as well as the assumption that the economy in the United States continues to be negatively impacted by the pandemic. The chairman stated that the... View report

Daily Report: February 22, 2021 - 6:19pm

With the exception of platinum, the rest of the precious metals complex traded on the futures markets all exhibited very respectable gains. Leading the forefront was silver futures, which gained 3.6% in trading today. This was followed closely by the electronically traded fund SLV, which outperformed futures as they gained 3.90%. The Ishares Silver trust is currently up to $0.98 per share and fixed that $... View report