Gold prices fell on Monday as the improving global economic outlook boosted the U.S. dollar, Treasury yields and the global equities markets. The stronger greenback made the dollar more expensive for investors using rival currencies, and the higher yields raised the opportunity cost of holding the non-yielding bullion.
Spot gold is currently trading at $1,725.51 per ounce as of 0829 GMT.
The accelerated rollout of the COVID-19 vaccine and the strengthening of the U.S. economy lifted investors’ appetite for riskier assets and dented the appeal of the yellow metal as a safe-haven asset. The 10-year U.S. Treasury yield remains close to a one-year hit on March 18. Another factor that weighs on the yellow metal is the rally of the Asian stock markets buoyed by the prospect of further U.S. fiscal spending. Market participants are monitoring President Joe Biden’s infrastructure spending plan expected to be in the range of $3-4 trillion.
CMC Markets chief market strategist Michael McCarthy said the Treasury yields are a big threat to gold prices in the near term. He predicted that the precious metal could quickly fall below the $1,700 per ounce level if bond sell-off gathers momentum. McCarthy also noted that the bullion appears to be caught between higher interest rates and inflation expectations resulting in market indecision and lack of action.
Meanwhile, U.S. consumer spending in February fell to its lowest level since April 2020. This is due to the cold wave that hit many parts of the country and the fading impact of stimulus payments to American households. But Gregory Daco of Oxford Economics considered the February pullback in spending as a temporary blip. He expects the new round of coronavirus stimulus package and the rising vaccination rates to give a significant boost to consumer spending in March.
In China, the annual profits of industrial companies in the first two months of the year surged to 1.114 trillion yuan. It is 179% higher compared to the same period of 2020. This development highlighted the recovery of China’s manufacturing industry and the rebound in economic activity.
In a related development, the U.S. Commodity Futures Trading Commission reported on Friday that money managers and hedge funds raised their bullish stance in COMEX gold contracts for the week that ended on March 23. The holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust, dropped by 0.6% from 1,043.03 tons on Thursday to 1,036.62 tons on Friday.