Gold Recovers on Rising COVID-19 Cases and Declining U.S. Yield

Gold-Bar

Gold prices recovered on Monday after the surge in COVID-19 cases in several countries and the decline in U.S. Treasury yields lifted the demand for the yellow metal. The bullion dipped close to its worst week on Friday on robust U.S. economic data and higher yield. But, the benchmark U.S. 10-year Treasury yields fell today and lowered the opportunity cost of owning the non-yielding metal. Meanwhile, the rising coronavirus cases boosted gold’s appeal as a safe-haven asset.

The dollar climbed to near a two-week peak, but its impact on gold was negated by lower yields and the growing number of COVID-19 cases. On Monday, India reported more than 300,000 new cases for the 12th consecutive day bringing the total caseload to almost 20 million.

Spot gold is currently trading at $1,779.45 per ounce as of 0721 GMT.

DailyFx strategist Margaret Yang noted that the current driver for gold prices is the pandemic situation in India and Japan. And the falling U.S. yields are lending further support, she added.

Market participants will be monitoring the release of U.S. economic data this week. These include the April payroll numbers and the ISM manufacturing index. Insights into the economic outlook will help them predict the future movement of gold prices.

Meanwhile, Dallas Federal Bank Reserve President Robert Kaplan warned against imbalances in the financial markets. He argued that the U.S. economy is recovering faster than expected, and the central bank should start discussing reducing support for the economy. Kaplan is referring to the $120 billion monthly bond purchases. But Fed Chair Jerome Powell maintained his stance to continue the pace of bond buying until they achieve their employment and inflation targets.

In physical trading, the bullion was sold at a discount in India for the first time this year. The recent surge in COVID-19 cases prompted tighter restrictions that dented the demand for the metal. Also, China’s gold consumption in the first quarter of 2021 soared to 288.2 tons. It is 93.9% higher compared to the same period last year. However, the country’s gold production for the quarter dropped to 74.44 tons. It is 9.92% lower compared to the previous year.

On the technical front, OANDA senior market analyst Jeffrey Halley said the bullion has a resistance price level at $1,790 per ounce and a support level at $1,800.