Gold Pricing Continues to React to Higher Yields in U.S. Debt Instruments

Gold hit its highest price point this month last week, the week of April 19, with market participants taking gold futures just a couple of dollars short of $1800 per ounce. However, during the week of April 19, gold futures opened on Monday only to close on Friday roughly at the same price point; $1778. The first two weeks of April both resulted in gold closing higher on the week, with the largest weekly gain occurring during the week of April 12. During the second week of April, gold opened at $1745 and closed at $1780, gaining approximately $35 on the week. That was the largest single-week gain this month.

Because gold is paired and traded against the U.S. dollar, one can see an inverse relationship between recent dollar weakness and gold strength over the first two weeks of April.

During the last week of March, gold pricing hit a second double bottom, with market participants observing the precious yellow metal trading just below $1680. Concurrently the dollar index was at its highest value during the last week of March. The lowest value of the USD this year occurred during the first week of January 2020, breaking below 89.00 on the dollar index. Historically the dollar has not had this low of a value since the first few months of 2018.

The highs that were achieved during the last month of March took the dollar’s value to highs not witnessed since the first week of November 2020, in each occasion trading to a high value of 93.50. This was followed by a decline in dollar value for three consecutive weeks and ended this week with the dollar trading to a low of 90.40.

The dollar index surged in trading today, gaining three-quarters of a percent, a total of 0.682 points, and is currently fixed at 91.275.

Dollar strength can also be deeply integrated into the rise or fall of U.S. Treasury bonds and 10-year notes. Higher yields in U.S. debt instruments can make that investment more attractive to investors seeking fixed income both in the United States and abroad. Higher yields in U.S. Debt instruments will also put downside pressure on gold, making the safe-haven asset class less attractive. It is this push and pulls of contrary market forces that have resulted in the recent price action in gold. Although gold closed lower on the day and week, it did result in a gain during the month of April.

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

Gary Wagner