James Hyerczyk
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Comex Gold

Gold futures finished lower on Friday as the U.S. Dollar firmed, weakening foreign demand for the dollar-denominated asset. Despite the setback, gold is being supported over the short-run by expectations for a $1.9 trillion U.S. coronavirus relief package, given its status as a hedge against inflation. Gold is being underpinned over the long-run by expectations for a weaker U.S. Dollar and real yields remaining low or negative.

On Friday, April Comex gold settled at $1823.20, down $3.60 or -0.20%.

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US Dollar Rallies as Risk Appetite Ebbs

The U.S. Dollar moved higher against a basket of major currencies on Friday after several days of losses earlier in the week, as risk appetite soured with stocks and some commodity prices lower, while investors also consolidated gains made on other currencies ahead of a long weekend in the United States. U.S. Financial markets are closed on Monday for Presidents’ Day.

The greenback rose against the Euro but lost ground against the British Pound. The U.S. currency also rose versus the higher risk Australian, New Zealand and Canadian Dollars.

Weaker-than-expected weekly U.S. jobless claims data on Thursday kept a lid on the U.S. Dollar as it added to concerns the recent run-up in the greenback was too much, too fast, as speculators bet on a speedier rebound in the U.S. economy.

Perhaps underpinning the greenback was the divergence amongst traders over how U.S. President Joe Biden’s planned $1.9 billion fiscal stimulus package will affect the dollar. Some see it as bolstering the currency as it should speed a U.S. recovery relative to other countries, while others reckon it would feed a global reflation narrative that should lift riskier assets at the dollar’s expense. Setting up gold for a stronger rally.


Yields Highest Since March on Profit-Taking, Inflations Expectations Hit Six-Year High

Benchmark U.S. Treasury yields rose to their highest levels since March on Friday as investors closed positions ahead of a long U.S. weekend, while inflation expectations edged up to a six-year high.

Yields have largely held in a range as investors wait on a new catalyst to send yields substantially higher, with U.S. fiscal spending seen as the next major focus.

“Our base case view is for a $1 trillion package, but I think market expectations are gravitating towards something much largest,” said Zachary Griffiths, a macro strategist at Wells Fargo in Charlotte.

Finally, inflation expectations rose as high as 2.23% on Friday, the highest since 2014. That means that investors are now pricing in average annual inflation of 2.23% for the next 10 years.

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