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Metals Stocks: Gold prices end with a modest loss, hold above the $1,900 mark

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Gold futures ended lower on Tuesday, but held ground above the key $1,900 mark, as U.S. Treasury yields edged up following upbeat U.S. manufacturing data.

Prices for the metal pared early gains after data showed that the IHS Markit U.S. manufacturing index in May was at 62.1, versus an initial 61.5. Prices then moved lower after separate data on the U.S. ISM manufacturing survey revealed a rise to 61.2% in May from 60.7%.

Against that backdrop, the Treasury yields rose, with the 10-year Treasury note yield
TMUBMUSD10Y,
1.612%

above 1.61%. Rising bond yields can dull the luster of gold, which offers no yield.

Gold prices on Friday, the last trading day before Monday’s U.S. holiday, had settled at their highest in about five months.

“Most of the moves in the gold prices are primarily due to the weakness in the dollar index, which hasn’t gained much attraction despite the fact that we saw decent [personal consumption expenditures] numbers for the U.S. economy last Friday,” said Naeem Aslam, chief market analyst at AvaTrade.

Traders may have “become too complacent about this trade, and they firmly believe that the major trend when it comes to the gold price is mainly skewed to the upside,” said Aslam, in a market update. “They are simply just not worried about any strength coming back in the dollar index, and this is leaving them wide open to get caught for a complete surprise.”

Gold for August delivery
GC00,
+0.01%

GCQ21,
+0.01%

inched down by 30 cents, or 0.02%, to settle at $1,905 an ounce on Comex. Prices for the yellow metal scored a gain of nearly 8% in May.

July silver
SI00,
+0.31%

SIN21,
+0.31%
,
meanwhile, gained 9 cents, or 0.3%, to finish at $28.10 an ounce on Tuesday.

The May rally for gold, which saw it finish above the psychologically important $1,900-an-ounce level on Friday, was accompanied by robust purchases by exchange-traded funds, which totaled 49 tons, said Carsten Fritsch, analyst at Commerzbank, citing Bloomberg data.

“They were the first monthly inflows since January and the biggest since September 2020. In view of the high inflation expected in the coming months and the significantly negative real interest rates as a result, demand among ETF investors should remain high, thus lending additional tailwind to gold,” he said.

The Federal Reserve remains in focus as policy makers weigh when to begin considering a reduction in its monthly pace of bond purchases in the wake of rising inflation. The U.S. personal consumption expenditure inflation index climbed to 3.6% in April from a year earlier, marking the strongest reading since 2008 and putting inflation well above the Fed’s 2% goal.

A “blockbuster” U.S. employment report for May due out Friday is the “key for the reflation trade which would also be the catalyst for rising Treasury yields,” said Edward Moya, senior market analyst at Oanda.  

Tuesday’s “manufacturing data doesn’t change anything with inflation, it still looks transitory, but it did cast doubts over the labor market recovery,” he said in a market update. “The Fed’s ultra accommodative stance will likely be confirmed on Friday, with everyone still expecting these next couple of months will be filled with upward pricing pressure.”

Meanwhile, in an interview with Politico, ahead of the central bank’s media blackout period before a two-day policy meeting June 15 to June 16, Fed’s Vice Chair for Supervision Randal Quarles said Tuesday that a “monthly high inflation reading does not necessarily lead to durable high inflation,” according to Reuters.

The debate on tapering purchases of U.S. Treasurys remains in its early stages, but if it becomes more concrete, causing bond yields to rise, gold could “briefly come under pressure — as has been seen in past months when yields increased,” Fritsch wrote.

But Commerzbank doesn’t expect pressure on gold from rising bond yields to last as long as yields remain below the rate of inflation, he said, with the bank looking for gold to hit $2,000 an ounce by year-end.

Among other metals, July copper
HGN21,
-0.50%

fell 0.5% to $4.65 a pound. July platinum
PLN21,
+1.67%

settled at $1,199.70 an ounce, up 1.5% and September palladium
PAU21,
+1.25%

climbed by 1.2% to $2,863.20 an ounce.

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