Today Federal Reserve Chairman Jerome Powell and Secretary of the United States Treasury Department Janet Yellin began a two-day testimony in Congress. In short, their testimony resulted in the strength of the dollar which was the main factor that brought down gold prices. As of 5:00 p.m. EST, the most active April 2021 contract is currently pegged at $ 1,725.50, after factoring in the current drop of $ 12.50 (-0.72%). Simple calculations determine that only 0.10% was attributable to market participants selling the precious metal, with the remaining decline being directly attributable to a strong dollar. The US dollar closed higher as the dollar index gained 62 points, or 0.68%, and is currently pegged at 92.365.
The price of silver was hit much harder today, with the most active contract in May 2021 currently pegged at $ 25,095, down 2.63%. This means that the vast majority of the current decline in silver can be directly attributed to market participants who are actively selling the precious white metal.
This can also be clearly illustrated when we visualize the KGX (Kitco Gold Index). In the case of spot gold, the KGX is currently pricing at $ 1,727.20, a net drop of $ 12.10 on the day. Of the decline of $ 12.10, the strength of the dollar contributed $ 10.40, with the remaining $ 1.70 decline due to selling pressure. The loss of silver, however, was mainly due to selling pressure which drove a 2.60% drop today. The KGX currently pegs spot silver at $ 25.01, a net decline of $ 0.73 per ounce. Selling pressure was 2.24% or $ 0.58, with the remaining $ 0.15 decline being directly attributable to the strength of the dollar.
One of the main topics covered on the first day of testimony was the health of the U.S. economy, which has experienced a huge contraction due to the
Global Covid-19 pandemic.
The disparity between current market sentiment by market participants, the Fed, and the Treasury is optimism about how quickly the United States will recover from the pandemic as well as the real possibility of a surge in the pandemic. inflation which has led to skepticism about the Federal Reserve’s current monetary policy. to keep interest rates (Fed funds) between zero and 25 basis points (1/4%). This optimism has led to higher yields on 10-year U.S. Treasuries, which are currently pegged at 1.627%.
According to MarketWatch, Michael Armbruster, Managing Partner of Altavest, told the publication: “Even though we have seen Treasury yields dwell in the past few days, we remain in a rising interest rate environment, this which is negative for gold and silver. . We probably need to see the stock markets break down before we get a policy change from the Fed… which could change the trajectory of precious metals prices. ”
He also added that “for the gold bugs, it is likely that the market will remain difficult for the next three to six months”.
On a bullish note, he referred to the long-term outlook for the price of gold, citing that he was “still bullish on the longer-term gold rebound if a mega $ 3 trillion bill goes through. Congress, but in the immediate future, gold is influenced by 10-year bond yields. He thinks this could cause interest rates to hike sooner than expected.
We have seen both gold and silver come under selling pressure created by a number of factors. These include the strength of the dollar, rising T-bill yields, as well as the recent rebalancing to favor US stocks over safe-haven assets.
The real question is whether or not market participants are right in their more optimistic view of a recovery than the Federal Reserve.
If, in fact, they correctly predicted a much faster recovery than the Federal Reserve believes, then we might see gold and silver continue to trade under pressure. However, if market sentiment is ahead of itself and overly bullish, we would see a return to bullish behavior for both gold and silver.
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Wishing you, as always, good trading and good health,
Warning: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a solicitation to exchange commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and / or damage resulting from the use of this publication.