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James Hyerczyk
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Comex Gold

Gold futures are under pressure for a third session on Thursday as U.S. Treasury yields hovered near a one-year peak, dampening the dollar-denominated asset’s appeal, although a weaker-dollar, the U.S. Federal Reserve’s commitment to an accommodative policy and expectations of more government fiscal stimulus limited losses.

At 08:22 GMT, April Comex gold futures are trading $1788.80, down $9.10 or -0.51%.

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Dollar Struggles as Powell Stays Dovish Course

The dollar is under pressure on Thursday, providing some support for gold as dovish testimony this week from Fed Chair Jerome Powell bolstered concerns about rising inflation. Powell reiterated on Wednesday that U.S. interest rates will remain low and the Fed will keep buying bonds to support the U.S. economy. The Fed’s commitment to low rates has some investors worried that inflation could spike on passage of further stimulus.

The dollar’s weakness in recent days has been more remarkable as it comes against the backdrop of a broader rise in U.S. yields.

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Rising US Treasury Yields

Benchmark U.S. Treasury yields are holding close to a one-year peak on Thursday after reaching the level in the previous session, increasing the opportunity cost of holding gold, which pays no interest.

Yields rose on Wednesday with the 10-year Treasury topping 1.4% for the first time since February 2020. Treasury yields edged higher even after Federal Reserve Chair Jerome Powell said in a congressional hearing Tuesday that inflation was “soft” and that the U.S. economy was ‘a long way from our employment and inflation goals.”

“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” he said on Tuesday.

US Coronavirus Relief Aid Remains in Focus

A $1.9 trillion U.S. coronavirus relief aid that is expected to pass later this week remains in focus. This could been providing some support for gold.

House Democrats plan to pass their stimulus relief bill on Friday as lawmakers try to prevent unemployment lifelines from expiring next month.

“The American people strongly support this bill, and we are moving swiftly to see it enacted into law,” House Majority Leader Steny Hoyer, D-Maryland, said in a statement earlier this week.

Daily Forecast

Although gold prices have weakened the last three days, the market is still up for the week because of Monday’s surge. With the market hovering just above long-term support zone at $1787.30 to $1711.70, traders could be trying to form a support base.

Investors continue to buy dips, but they aren’t buying strength, which would be the first sign of a change in sentiment.

We expect Powell’s reiteration of keeping monetary policy unchanged until the economy was back to full employment and a weaker dollar to remain supportive, but if the passing of the fiscal stimulus bill doesn’t trigger an upside breakout then we’re afraid gold prices will remain under pressure over the near-term.

For a look at all of today’s economic events, check out our economic calendar.

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