Metals Under Pressure Amid Stronger Dollar, Rising Bond Yields

Gold and silver lost ground in early trading on Tuesday, while a robust US dollar and rising bond yields dampened their appeal. Looking at the gold daily chart above, we can see that the yellow metal has fallen to its lowest level in over a week and the major low of $1,675 has come into view for the bears.

The US dollar was lifted by its safe haven status during the collapse of the US hedge fund Archegos Capital. A stronger dollar can pressure dollar priced assets, because it makes the assets more expensive for buyers in other currencies. US Treasury yields rose on Monday, with the 10-year yield hovering above 1.7%. Higher bond yields make non-yielding assets such as gold less attractive to investors.

On Wednesday, President Joe Biden will lay out the first part of his multitrillion-dollar economic recovery package, focusing on rebuilding roads, bridges and other infrastructure. The plans for a major stimulus package, along with accelerating US vaccinations, have boosted inflation expectations and Treasury yields.

Rising inflation expectations lift bond yields. Inflation weakens the purchasing power of a bond’s future cash flows. To compensate, bond yields rise as the expected future rates of inflation increase. Bond prices move inversely with yields.

Despite the recent slide, Wells Fargo remains bullish on gold with a 2021 price target of $2,200, citing diminishing supply, according to a report from Kitco.

Silver Daily Chart

Meanwhile, silver is now hovering above a major support level at $24.45 and is trading below the 200-period simple moving average.

Elsewhere, copper, which has doubled in price over the past 12 months, is now consolidating and has formed a pennant pattern.

It will be a shortened week for trading with commodities and other financial markets set to be closed on Good Friday.