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James Hyerczyk
Comex Gold

Gold futures are inching higher on Thursday but inside yesterday’s trading range, which tends to indicate investor indecision and impending volatility.

If you would have asked a gold bug broker or analyst earlier in the week what gold would do if protesters stormed Capitol Hill, they would have told you that safe-haven buying would have driven it higher. Well, they were right about the safe-haven buying, but they would’ve been buying the wrong asset.

At 13:14 GMT, February Comex gold is trading $1918.00, up $9.40 or +0.49%.

But that’s just one of the catalysts behind gold’s dreadful downfall on Wednesday. We know some investors bought the U.S. Dollar for safety. We saw that late in the afternoon when the protests were heating up. The dollar was in the process of posting a reversal bottom and gold was erasing all of this week’s and threating to turn lower for the week.

However, what really caught gold traders by surprise was the jump in 10-year U.S. Treasury yields above 1% for the first time since March.

Remember that gold doesn’t pay a dividend or interest so when interest rates get attractive enough, investors pull money from assets like gold and move it into the investment that offers the highest yield, in this case, U.S. Treasuries Notes and Bonds. So I can agree that gold may be a store of value or a parking lot for investors that are waiting for a better opportunity.

10-Year Treasury Yield Above 1% Following Projected Democrat Senate Win

The 10-year U.S. Treasury yield continued its ascent above the 1% mark on Thursday morning, following a projected win for the Democrats of two Senate seats in the Georgia runoff elections.

The yield on the benchmark U.S. Treasury yield note rose to 1.063% at 08:40 GMT, while the yield on the 30-year Treasury bond jumped to 1.847%.

Treasury yields extended gains from the previous session, with Congress have confirmed the election of Joe Biden as president on Thursday morning.


Other Economic News

Minutes from the U.S. Federal Reserve’s most recent meeting, released Wednesday, showed the central bank will give the public plenty of notice before cutting back on its bond-buying program.

Daily Forecast

Gold prices could continue to tumble into a value area over the near-term if rising Treasury yields continue to drive the U.S. Dollar. The stronger U.S. Dollar will then reduce foreign demand for dollar-denominated gold.

Make sure you know why the dollar could rise before you trade gold. This is not U.S. Dollar buying related to an outlook calling for a stronger economy. This buying is related to rising Treasury yields. The dollar is still long-term bearish, but the selling may not resume until yields top going up. So a short-term adjustment has to be made.

If you’re going to use the U.S. Dollar as an indicator for the direction of gold then make sure you’re adaptive in your methods. There are more than one reasons the dollar moves up or down. Rising interest rates is one.

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