Gold prices were trading weak in the domestic market on Friday as international spot prices fell, pressured by a surge in US Treasury yields and a rebound in the dollar.
Any increase in treasury yields augments negatively for gold prices. Image: Reuters
Gold prices were trading weak in the domestic market on Friday as international spot prices fell, pressured by a surge in US Treasury yields and a rebound in the dollar. On MCX, gold April futures were trading Rs 41 or 0.09 per cent down at Rs 44,910 per 10 grams as against the previous close of Rs 44,951. Silver May futures were ruling at Rs 67,148 per kg, down Rs 599 or 0.88 per cent, as compared to a previous close of Rs 67,747 on the Multi Commodity Exchange. The benchmark US 10-year Treasury yield rose above 1.74 per cent for the first time since January 2020, while the US dollar rose 0.5 per cent in the previous session.
Reflecting investor sentiments, Holdings of SPDR Gold Trust fell 0.2 per cent on Wednesday from Tuesday. “Technically, MCX Gold April important supports are at Rs 44,550-44,500 levels and resistances are at Rs 45,130-45,320 levels,” said Sriram Iyer, Senior Research Analyst at Reliance Securities. For MCX Silver May contract resistances are at Rs 68,400-69,500 levels. Support is at Rs 66,800-66,200 levels. From a record high of Rs 56,191 per 10 gram on MCX in August 2020, gold prices have plunged Rs 11,281 per 10 gram or 20.07 per cent.
If the US 10 year treasury yield breaches the 2 per cent mark on upside then it would cause the equity and precious metal asset class to break, says Bhavik Patel, Senior Technical Research Analyst, Tradebulls Securities. Patel also said that it would force Fed to bring down the yields as right now Fed is not putting any effort to combat the rising yields. The rise in the yields has mainly been powered by increased inflation expectations and not by a significant rise in real rates. Right now the biggest nemesis for gold after the US dollar is treasury yields.
How does a rise in US bond yields impact gold prices
Any increase in treasury yields augments negatively for gold prices. “All however is not lost for Gold as technically, it is still trading above psychological level of $1700 and has yet to breach the all-important support of $1680. Any dips near $1700 could be bought and we might change our view from buy on dips to sell on rise when gold breaches $1680 on the downside or 10 yr US Treasury yields breaches above 2%,” he added. Patel said that gold in MCX has support around Rs 44,200 and resistance around Rs 45,500. Now the next set of direction for gold will come on the basis of where US treasury yields are headed.
COMEX gold was trading marginally lower near $1730/oz after a 0.3 per cent rise in the previous session. Gold remained pressurized by higher US bond yields, rebound in US dollar and continuing ETF outflows. However, supporting price is Fed’s dovish monetary policy stance, mixed economic data from major economies, renewed virus concerns and increased tensions between US-China and US-Russia, says Ravindra Rao, VP- Head Commodity Research at Kotak Securities. “Gold may witness choppy trade along with the US dollar and yields however Fed’s dovish stance may lend some support,” Rao added.
Globally, spot gold fell half a per cent to $1,728.63 per ounce, after hitting its highest since March 1 in the previous session. US gold futures were down 0.3% at $1,728.00 per ounce.
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