Gold, silver holding solid gains despite better risk appetite
Gold and silver prices are holding sharp gains near midday today, boosted by a steady-weaker U.S. dollar index and a dip in U.S. Treasury yields at mid-week. There’s an old trading adage that says markets will do anything and everything possible to frustrate the largest number of traders. Such appears to be the case at present in the safe-haven metals: They sell off on keener risk aversion and rally on better risk appetite. Apparently, the metals traders on this day are focusing more on inflation prospects receding if the war in the Middle East de-escalates. And veteran gold market watchers also remember when their metal used to rally on inflation fears. April gold was last up $155.70 at $4,557.90. May silver prices were up $3.521 at $73.125.
Poor U.S. Treasury auction hints of problematic inflation looming. U.S. Treasury prices sank Tuesday (yields rose) after investors spurned an auction of two-year Treasury notes amid concern that a potentially protracted war in the Middle East will lead to an oil-driven resurgence in inflation. “Losses deepened on Tuesday after a $69 billion sale of two-year notes drew unexpectedly weak demand and as the Wall Street Journal reported that the U.S. is planning to deploy about 3,000 troops to the Middle East,” said a Bloomberg report. Two-year yields rose by as much as 10 basis points to 3.96%, leading yields on all maturities higher as oil prices advanced. The auction “was unfortunately brought to market in a very difficult, unsettled, unsure period,” said David Robin, an interest-rate strategist at TJM Institutional Services LLC, said the Bloomberg report. “Why commit? Risk-reward is heavily skewed to risk versus reward,” he said. The two-year notes were awarded at 3.936%, higher than their yield in pre-auction trading just before the bidding deadline — a sign that demand fell short of expectations. The result was the highest two-year auction yield since last May.
Fed official: U.S. rates may need to remain steady for “some time.” Federal Reserve Governor Michael Barr on Tuesday said policymakers may need to keep U.S. interest rates steady for “some time” to address inflation that’s notably above the central bank’s 2% annually goal. “While I am hopeful that inflation will fall as the effects of tariffs on prices wane later this year, I would like to see evidence that goods and services price inflation is sustainably retreating before considering reducing the policy rate further, provided labor market conditions remain stable,” Barr said in remarks prepared for an event in Phoenix Tuesday, and as reported by Bloomberg.
Nymex WTI crude oil prices are down around $3.50 a barrel and trading around $89.00. The U.S. dollar index is steady-weaker today. The yield on the benchmark 10-year U.S. Treasury note is presently around 4.3 percent.
Note: The gold market operates through two primary pricing mechanisms. The first is the spot market, which quotes prices for on-the-spot purchase and immediate delivery. The second is the futures market, which sets prices for delivery at a future date. Due to year-end positioning market liquidity, the December gold futures contract is currently the most actively traded on the CME.
Technically, April gold futures bulls’ next upside price objective is to produce a close above solid resistance at $4,750.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at this week’s low of $4,100.00. First resistance is seen at the overnight high of $4,601.00 and then at $4,700.00. First support is seen at $4,500.00 and then at the overnight low of $4,458.20. Wyckoff's Market Rating: 4.0.
May silver futures bulls see their next upside price objective is closing prices above solid technical resistance at $80.00. The next downside price objective for the bears is closing prices below solid support at $60.00. First resistance is seen at the overnight high of $74.80 and then at $75.00. Next support is seen at the overnight low of $71.31 and then at $70.00. Wyckoff's Market Rating: 4.0.
