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Metals Stocks: Gold ends higher after Yellen walks back talk of interest-rate hike

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Gold prices ended higher on Wednesday, a day after the commodity finished lower on the back of comments from U.S. Treasury Secretary Janet Yellen which were viewed as bearish for precious metals.

Yellen, formerly head of the Federal Reserve, initially suggested in an interview published Wednesday that the Fed may need to raise interest rates to rise to keep the economy from overheating.

However, the Treasury boss later clarified her remarks at The Wall Street Journal’s CEO Council Summit, saying that she was neither predicting nor recommending that the Fed raise rates. She also said that she didn’t anticipate inflation being a sustained problem for the economy as it bounces back from COVID.

“In the commodity sphere, gold was another casualty of Yellen’s communication mishap, suffering at the hands of rising Treasury yields and a firmer dollar,” wrote Marios Hadjikyriacos, investment analyst at XM, in a daily report.

Rising interest rates can undercut the appeal of owning gold because precious metals don’t offer a coupon.

Yellen’s clarification of her remarks on interest rates, however, “did nothing to help gold break through” the $1,800 mark, which is a “very strong resistance level,” David Russell, director of marketing at GoldCore, told MarketWatch.

“The gold market has been range bound for the past few months and fears of a broader sell off in stocks is also weighing heavily on gold, which tends to become increasingly correlated with stock markets during short term sharp corrections,” he said. Still, some traders feel that a “broader market correction in stocks is coming, and gold may very well only resume its march back to $2,000 and above once this happens.”

June gold
GCM21,
+0.43%

GC00,
+0.43%

rose $8.30, or 0.5%, to settle at $1,784.30 an ounce, following a 0.9% decline on Tuesday, a fall that yanked the commodity down from its highest settlement for a most-active contract since April 21.

Gold “seems stuck spinning its wheels between $1,700 and $1,800 at the moment,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.  

Near term, “with economies tracking toward wider re-openings, the biggest potential catalyst for gold may be if we get another rally in commodities that causes inflation to spike,” as gold has historically been seen as a hedge against inflation, he said. “On the other hand, even the potential benefits for gold could get tempered if a rise in inflation forces U.S. interest rates and the U.S. dollar upward to compensate.”

Gold futures trade more than 6% lower year to date.

Overall losses for the metal have come as Treasury bond yields move up, lifting the opportunity cost of holding gold, said Marshall Gittler, head of investment research at BDSwiss. On Wednesday, the yield on the 10-year Treasury note
TMUBMUSD10Y,
1.593%

was up at around 1.60%.

Meanwhile, “as the vaccination programs in the U.S. and Europe take off, the fear of economic collapse diminishes,” Gittler told MarketWatch. “Fear of ever-rising budget deficits, negative interest rates, and endless quantitative easing…has also receded.

“Thus the perceived demand for a safe haven asset like gold has diminished,” he said.

Meanwhile, July silver
SIN21,
-0.09%

SI00,
-0.09%

lost 4 cents, or 0.1%, at $26.52 an ounce, after settling 1.5% lower in the prior session.

In U.S. economic news Wednesday, Automatic Data Processing reported that U.S. businesses created 742,000 new jobs in April, the most in seven months. Gold prices fell in the immediate wake of the private-sector jobs report, then moved up sharply. The data come ahead of Friday’s monthly U.S. nonfarm payrolls report.

Separately, the ISM services sector activity survey released Wednesday showed a fall to 62.7% in April from 63.7%.

Among other Comex metals, June palladium
PAM21,
-0.10%

fell 0.2% to $2,972.80 an ounce. On Tuesday, it logged a record intraday high of $3,019.

The palladium market saw strong enough vehicle sales data recently to “add credence to the surging demand and tightening supplies arguments,” analysts at Zaner wrote in Wednesday report.

“On the other hand, the June palladium market has now failed at the $3,000 level on 3 separate occasions, and it could be difficult for the market to extend its pattern of new all-time highs if overall market psychology returns to the ‘risk-off’ condition” seen Tuesday, they said.

Read: Palladium touches an all-time high above $3,000 an ounce

July platinum
PLN21,
-0.03%
,
meanwhile, edged down by 0.2% to $1,228.80 an ounce. July copper
HGN21,
+0.04%

settled at $4.52 a pound, up nearly 0.1%.

Read: The world risks ‘running out of copper’ — and here’s how high prices may rise as the economy reopens, BofA warns

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