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Metals Stocks: Gold prices notch back-to-back gains, but settle below $1,900/oz.

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Gold futures booked back-to-back gains on Monday, finding some support from a decline in the U.S. dollar, but prices finished below the key $1,900 for a third session in a row.

“Gold has hit a ceiling unless Treasury yields break lower from here,” Michael Armbruster, managing partner at Altavest, told MarketWatch. 

“Our expectation is that sooner or later, with more hot inflation data likely, long-dated Treasury yields will break higher as the market starts to price in longer-lasting high inflation,” he said. 

The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.569%

edged up to 1.566% in Monday dealings. Yields and bond prices move in opposite directions. Higher bond yields raise the opportunity cost of holding gold and other nonyielding assets.

The dollar, however, weakened against most currency rivals, with the ICE U.S. Dollar Index DXY, a measure of the buck against a basket of six major rivals down 0.2%. A weaker dollar can be a positive for commodities priced in the currency, making them less expensive to users of other monetary units.

“Rising 10- and 30-year Treasury yields could be very negative for gold in the near-term,” said Armbruster. “In fact, we could see gold and the U.S. Dollar Index dropping together.”

On Monday, gold for August delivery
GC00,
+0.54%

GCQ21,
+0.54%

rose $6.80, or 0.4%, to settle at $1,898.80 an ounce on Comex, after reaching intraday highs just under $1,900. Prices for the most-active contract climbed 1% on Friday, but haven’t settled above $1,900, which is seen as a key resistance level, since Wednesday.

After Monday’s Comex settlement, however, prices in electronic trading inched up a bit further to surpass that $1,900 mark.

July silver
SIN21,
+0.57%
,
meanwhile, climbed by 12 cents, or 0.4%, for the regular trading session, to nearly $28.02 an ounce, the highest most-active contract price settlement since Wednesday.

Both the dollar and yields fell significantly after a disappointing May jobs report on Friday, helping gold to almost regain the $1,900-an-ounce level, said Carsten Fritsch, analyst at Commerzbank, in a note.

Fritsch argued that inflation worries, which he expects to be underlined by Thursday’s release of the May consumer-price index, are set to intensify.

Signs of mounting inflationary pressures “could prompt the Fed to reduce its bond purchases sooner. We expect this to happen from the fourth quarter,” but won’t entail a rise in interest rates, Fritsch sad.

“Nominal yields will therefore remain well below the inflation rate for some considerable time, leaving real interest rates significantly negative. This is a strong argument in favor of a rising gold price,” he argued.

Rounding out metals action on Comex Monday, prices for the July copper contract
HGN21,
-0.18%

lost nearly 0.1% to end at about $4.53 a pound. July platinum
PLN21,
+0.97%

tacked on 0.9% to $1,174.80 an ounce, but September palladium
PAU21,
-0.17%

settled at $2,837.70 an ounce, down 0.2%.

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