Do 2 Year Treasury Rates Guide the Gold Price?

by GoldCore

Today’s AM fix was USD 1,291.25, EUR 926.03 and GBP 761.13 per ounce.
Yesterday’s AM fix was USD 1,311.00, EUR 942.08 and GBP 772.54 per ounce.

Gold fell $18.40 or 1.41% yesterday to $1,289.40/oz. Silver slipped $0.25 or 1.28% to $19.31/oz.

After rising to near its highest level in three weeks early yesterday at $1,315/oz, gold experienced its biggest intraday price fall in three weeks yesterday, falling to $1,290/oz by close of New York trading. Silver likewise retreated from the $19.70/oz level to the $19.20/oz range.

The price weakness in the precious metals was attributed to apparent de-escalation of tensions in the Ukraine conflict after Russia promised that military exercises near the eastern Ukrainian border would be scaled back, and Putin called for separatists in the south-east of Ukraine to postpone an independence referendum planned for May 11th.

Gold and silver prices were also undermined by remarks from Janet Yellen, the Fed Chair, who appeared yesterday before the U.S. Congress in testimony about the U.S. economic outlook. While Yellen didn’t say anything unexpected and reiterated that short-term interest rates would remain near zero, her confirmation that the U.S. economy would still be supported was interpreted as a positive for risk assets.

The Governing Council of the European Central Bank meets today in Brussels to decide whether to alter their closely watched benchmark and deposit rates. Consensus economist estimates indicate no changes, with the benchmark rate expected to stay at 0.25% and the deposit rate to stay at zero.

Gold is now trading again in a very narrow trading range below $1,300/oz, and the market does not seem to want to commit to push the gold price significantly in any one direction, with investors appearing to be waiting on the sidelines.

Global Macro 360
Today we feature incisive analysis on the gold price from Global Macro 360, the excellent new daily research service by economist, broadcaster, and author David McWilliams.

Spot Gold Price in U.S. Dollars – (Global Macro 360)

With the U.S. Dollar Index (DXY) down near a 2 year low and 10 year bond yields touching 2.6%, McWilliams highlights that on previous occasions when the USD has touched these levels, gold investors have got burnt, since their expectation that the USD would weaken further, and that the gold price would rally, did not materialise.

Likewise, there is no real conviction that 10 year yields will fall below 2.6%. Indeed, economic polls suggest that the 10 year yield is expected to rise for the remainder of this year, as is the shorter 2 year yield. Last time short-term rates spiked, the gold price fell through $1200. This fear of rate hikes is likely to be keeping bullish gold sentiment on the sidelines.

Spot Gold Price in U.S. Dollars & U.S. 2 Year Treasury Yield – (Global Macro 360)

Note: The U.S. Dollar Index (DXY) measures the dollar’s performance against a basket of six major currencies.

GoldCore has partnered with Global Macro 360 to offer GoldCore readers a discounted 6 month or yearly subscription membership to David McWilliam’s daily market insights. Follow Global Macro 360 for more in depth economic analysis on the global macro economy, including the gold price.

Click Here for your discounted subscription to Global Macro 360