'Golden Touch' Continues For Gold as Treasuries, Dollar Slump

By Barani Krishnan

Investing.com - Gold’s “golden touch” hasn’t deserted it, apparently.

Fears that bulls were all wrong about their “higher and higher” calls for the shiny metal were disproved Tuesday as futures on Comex broke above $2,020 an ounce the first time in a week. 

But before the safe-haven crowd could really celebrate, the market fell $35 intraday, reaching a session low of $1,985. It briefly revived memories of last week’s “Black Tuesday” drop of 5% and swing of nearly $130 on the day.  

Yet, the day still ended well for gold bugs as futures and spot prices of the metal for immediate delivery rose about 1% each, adding to Monday’s gain of 2% or more.

Benchmark December gold futures on Comex settled up $14.40, or 0.7%, at $2,013.10 after an intraday peak at $2,023.90. 

The spot price of gold, which reflects trades in bullion, rose by $21.64, or 1.1%, to $2,007 by 2:40 PM ET (18:40 GMT). 

Yields on the U.S. 10-Year Treasury note, meanwhile, fell  2.8% by the settlement of gold futures in New York. They fell about 4% in the previous session. Tuesday’s slide came after fresh tensions between Washington and Beijing spurred safe-haven demand for gold. 

The U.S. Dollar Index also  slumped for a second straight day, reaching as low as 92.11. The Federal Reserve is due to release on Wednesday its July meeting minutes that could be more dovish for the dollar. Analysts have said a snap below 92 on the Dollar Index could trigger a volley of new buying in gold. 

The Fed’s Federal Open Market Committee, or FOMC, has vowed to keep U.S. rates at near zero until the United States recovers from the pandemic. The U.S. central bank has also allocated a few trillion dollars under its own unlimited balanced sheet, aside from what Congress has budgeted, to provide lending to distressed businesses and credit markets.

“Gold prices seem to have gotten its mojo back,” said Ed Moya, an analyst at OANDA in New York. “Treasury yields are falling again as expectations grow that the Fed policy review framework will signal a relaxed view on inflation, taking some of the air out of the steepening of the curve and dragging the dollar along with it.” 

TD Securities had a similar view.

“In this context, the pullback has sapped out excess positioning from gold futures, mitigating the risk of a rush-to-the-exits as participant position sizes remain neutral, while the bullish narrative continues to gather share of consensus,” the brokerage said in a note. “While the risk of a deeper pullback was previously elevated, macro headwinds are once again turning to tailwinds, which could once again argue for higher gold prices.” 

Even so, Moya cautioned gold bulls against treating the yellow metal as a one-way trade against the dollar.

“The dollar fundamentals still warrant further weakness, but this trade has become a bit overcrowded and is ripe for some short-term dollar momentum,” he said. “Gold volatility will remain elevated and if the dollar has a couple days of strength, gold could consolidate tentatively before making a climb back to uncharted territory.” 

Silver, the second top draw in precious metals, got another ride up Tuesday on the back of the rally in gold, though its gains this time were modest.

September, the front-month silver contract on Comex, settled up 40.8 cents, or 1.5%, at $28.075 per ounce, extending Monday’s 6% rise.

“Silver remains our precious metals favorite, as a clean positioning slate, rising industrial demand, spectacular investment demand and inventory constraints should maintain momentum to the upside,” TD Securities said. “In this context, the additional negative gamma created by a surge in leveraged-ETF flows in silver continue to add some fat to silver's right tail.”

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