Bond Yields Surge lead to a significant sell-off in financials and precious metals | The Gold Forecast

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

February 25, 2021 - 7:04pm

 by Gary Wagner

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

This report is now free and publicly available to everyone

Gold Forecast: Proper Action

We are long the following; On February 18 we enter a long April Platinum trade. In at $1282. Our stop is at $1217.00

SILVER FUTURES MARCH: Entry at $27.36, we moved stop up this morning, and then closed the trade later @ $27.45. This was done to roll over to the May 2021 Comex contract
XAGUSD: Entry at $27.26, moved stop up on February 25 to $27.39

We also remain long SLV:
First leg SLV: @ 22.95 . New Stop @ $24.99
Second leg SLV @ 24.60. New Stop @ $24.99

On Thursday February 4 stops were hit on our long GLD ETF. We entered at 172.14. Our stop was hit at $168.29 (the open on Thursday) for a $3.85 loss per share.

GOLD FUTURES APRIL: Entry at 1845 - 1859 . Stop hit at 1813 - average loss $3900 per contract
XAUSUD: Entry at 1845 - 1857 . Stop hit at 1813 - average loss of $38 per oz
SILVER FUTURES MARCH: Entry at 25.42 - 25.46 . Stop hit at 24.11 - average loss $6650 per contract
XAGUSD: Entry at 25.33 - 25.40 - Stop hit at 24.11 - average loss $1.3 per oz
long February gold @ $1890.00 and stop hit @ $1902.20, for a profit of $1202.00 per contract
long Forex gold @ $1886.00 and stop hit @ $1898 for a profit of $12.00 per OZ
long March silver @ $26.31 and stop hit @ $26.41 for a profit of $500.00 per contract
long GLD @ $177.26 and stop hit @ $178.00 for a profit of $0.71 per share
long SLV @ $24.67 and stop hit @ 25.00 for a profit of $0.33 per share
long February Gold Futures at $1860-$1866 and stop hit at at $1869. Average profit $600 per contract
long XAUUSD at $1856-$1862 and stop hit at $1866. Average profit $6
long March Silver Futures at $25.16 - $25.25 and stop hit at $25.30. Average profit $450 per contract
long GLD @ $174.12 and stop hit at $175.78 for a profit of $1.66 per share
long GLD @ $174.12 and stop hit at $175.78 for a profit of $1.66 per share
long February Gold Futures at $1830 -$1843 and out at $1850 for a profit of $700 to $2000.00 per contract
long XAUUSD at $1841 and out at $1850 for a profit of $90.00 per mini 10 oz contract
long March Silver Futures at $24.29 and out @ $24.40 for a profit of $550.00 per comex contract
long GLD @ 1$71.50 and out @ $173.00 for a profit of $1.50 per share
long SLV @ $22.30 and out @ $22.50 for a profit of $0.20 per share
Long December gold at $1899. Stop hit at $1918, for a $1900 profit
Long forex gold at $1896.00. Stop hit at $1912, for a $1600 profit
Long December silver at $24.21. Stop hit at $25.07 for a $4300 profit
Long GLD at $180.46 and stop hit at $176.42 for a loss of $4.04 per share
Long SLV at $23.23 and stop at $22.78 for a loss of $0.40 per share
Long December Gold Futures at $1926 and stop hit at $1907.30 for a loss of $18.70 per ounce
Long Forex Gold at $1922 and stop hit at $1903 for a loss of $19.00 per ounce
Long December Silver Futures at $25.13 and stop hit at $24.73 for a loss of $0.40 per ounce
Long December gold at $1890, out at $1909.30 for a profit of $1,930.00
Long December silver at $23.95, out at $24.50 for a profit of $2,750.00
Long Forex gold at $1883.68, out $1907 for a profit of $23.32 per ounce
Long GLD ETF at $178.03, out at $179.80 for a profit of $1.77 per share
Long SLV ETF at $22.66, out at $22.03 for a loss of $0.63 per share
Long December Silver (SI Z20) @ $27.07 - Stop hit @ 25.56 for a loss of $1.51 per ounce
Long GLD @ $183.91- stop hit @ $178.50 for a loss of $5.41 per share
Long SLV @ $ 26.33 - stop hit @ $23.53 for a loss of $2.80 per share
Long December gold (GC Z20) @ $1947.00 - Stop hit @ $1952 for a profit of $500.00 per contract
Long Forex gold (XAU A0-FX) @ $1939.00 - Stop hit @ $1944.80 for a profit of $5.80 per ounce
Long December gold @ $1956.50.Stop hit @ $1960 for a profit of $350.00 per contract
Long December silver @ $27.39.Stop hit @ $27.80 for a profit of $2050 per contract
Long forex gold @ $1948.55.Stop hit @ $1955 for a profit of $6.45 per ounce
Long GLD @ $183.57.Stop hit @ $184.36 for a profit of .79 per share
Long SLV @ $25.10.Stop hit @ $25.75 for a profit of .65 per share
Long September silver at $26.68. Our stop was hit @ $26.87 for a profit of $1000 per contract.
Long December Gold at $1955.50. Our stop was hit @ $1979 for a profit of $2350 per contract
Long Forex Gold at $1947. Our stop was hit @ $1967,52 for a profit of $20.52 per Ounce
Long September silver at $24.40. Our stop was hit @ $25.99 for a profit of $7950 per contract
Bought GLD @ $166.74. Our stop was hit @ $$183.00 for a profit of $16.87 per share.
Bought SLV @ $18.00 Our stop was hit @ $23.80 for a profit of $5.80 per share.
NUGT – we sold all shares and took profits of $33.19 per share
Long December gold at $1997, we covered the trade @ $2035 for a profit of $3800 per contract
Long Forex gold at $1977, we covered the trade @ $2017 for a profit of $40.00 per ounce

Gold Market Forecast

Today’s selloff in gold took it back to the low that both traded to in November. It is for that reason that we are at in extremely critical price point. That will be the primary focus on the first charts that we look at in gold, because if it does break through this area gold could drift as low as 1700. On the other hand there is a case to be made for this price point to be an excellent area to find support.

Gold as well as the other precious metals and U.S. equities sold off harshly today in response to higher yields in United States bonds and notes. This recent uptick in yields is a direct result of market sentiment shifting to a bullish demeanor which cause US equities to rally over this last week, however today’s high of the ten-year notes reached 1.5%, the highest we have seen this yield in well over a year. Continued upticks in US notes and bonds could put additional pressure on gold. However, I’m not convinced that they have factored in the fiscal stimulus aid package which is being voted upon in Congress on Friday.

It is the possibility of an extremely large $1.9 trillion aid package being passed with only Democratic support. That being said if lawmakers are able to put this bill through it would provide some solid bullish market sentiment for both gold as well as the precious metals.

Market Overview

Economic Calendar