The tale of two Americas regarding the pandemic and its end

There is a dichotomy between the optimism expressed by market participants that the pandemic and recession have run their course and we will soon return to a new normal, versus the reality of the recent uptick in new Covid cases across the United States.

This dichotomy has had a profound impact on not only individuals but also the financial markets. Today the yield on U.S. Treasuries 10-year notes rose to a high not seen in over a year and is currently yielding 1.77%. As yields moved higher, the dollar gained strength resulting in the precious metals trading lower. Gold basis the most active April 2021 Comex contract lost $30.90 (- 1.8%) today, and silver basis the most active May 2021 Comex contract gave up $0.77, a total decline of (-3.11%), and is currently fixed at $24 per ounce.

The higher yields for U.S. Treasury notes and the sharp decline in both gold and silver pricing is a reflection of optimism that the rollout of the vaccine has created hopefulness which can be seen in the consumer confidence index for March, which came in at 109.7. That is up over 20 points from February’s revised numbers, which came in at 90.4.

At the same time, there has been an alarming uptick in the number of Covid 19 cases in the United States as reported by the CDC. According to CNN, new cases of the virus have spiked up by 22% when compared to the numbers of the prior week. According to Rochelle Walensky, Director at the CDC, “I know that travel is up, and I just worry that we will see the surges that we saw over the summer and over the winter again.”

Add to that the new variants, in particular the B.1.1.7 variance that is spreading rapidly throughout the United States. It appears that not only is this variant more contagious but deadlier as well.

Another major difference in this recent uptick of Covid infections is the age group. Now that many Americans over 65 years old have received their vaccinations, the age group for most new cases reported is in the age of 20 to 45-year-old Americans.

The question becomes, while there has been real and genuine progress are market participants getting ahead of themselves in regards to their optimism? As more and more states relax their safety mandates, the question of whether or not they are acting too soon despite warnings by health experts.

In regards to the recent and strong decline in gold and silver pricing, dollar strength has absolutely played a defined role. However, the vast majority of the decline seen over the last couple of weeks was a direct result of market participants actively selling both gold and silver. When we look at a monthly chart of gold futures in the last eight months, there was only one month that resulted in gold closing higher, which was December 2020.

As long as yields in U.S. Treasury notes continue to climb, not only will we see the dollar gain strength but also increased pressure on both gold and silver pricing.

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