Gold Closes Lower On Stronger Dollar And Higher T-Note Yields

Rich Asplund - Barchart - Fri Jun 11, 2:27PM CDT

August gold (GCQ21) closed -16.80 (-0.89%), while July silver (SIN21) closed up +0.115 (+0.41%).

Gold fell on Friday due to the +0.5% rally in the dollar index and higher T-note yields. However, silver closed higher due to optimism about industrial metals demand from the strengthening global economy.

Friday's strong U.S. consumer sentiment report was a supportive factor for industrial metals demand and silver prices. The preliminary-June University of Michigan U.S. consumer sentiment index rose by +3.5 points to 86.4, which was stronger than expectations for a +1.3 point increase to 84.2.

Gold has underlying support from demand as an inflation hedge after Thursday's very strong May CPI report. On a 3-month annualized basis, the headline May CPI rose by +8.4%, and the core CPI rose by +8.3%. On a year-on-year basis, the May core CPI rose by +3.8% y/y, the largest increase in 29 years.

Gold has underlying support from the Covid pandemic, which is dovish for central bank policies. However, the pandemic has eased after fresh global Covid infections for the week ended June 6 fell to 3 million, the lowest since mid-March. Also, the 7-day average of new U.S. Covid infections on Thursday fell to a new 14-month low of 14,322. Globally, Covid infections have risen above 175.2 million, while deaths have exceeded 3.7 million.

Safe-haven demand and dovish central bank expectations have sparked fund buying of precious metals in recent months. Last week's rally in gold prices to a 4-3/4 month high was supported by new long positions as long gold positions in ETFs rose to a 2-3/4 month high last Tuesday of 3,147.96 metric tons, moderately below October's record high of 3,459.8 metric tons (data since 2002). Long silver positions in ETFs soared to a record high Feb 2 of 1.017 billion troy ounces (data from 1990), although long silver positions fell to a 4-1/4 month low on May 12.
Big Picture Gold-Silver Market Factors: Bullish factors include (1) highly stimulative monetary policies by the world's key central banks to prevent systemic stress in the global financial system and combat the economic damage from the Covid pandemic, (2) the recent sell-off in the dollar index to a 2-3/4 year low, (3) low global inflation that is dovish for central bank policies, and (4) safe-haven demand due to the Covid pandemic, trade tensions, and global geopolitical risks involving Iran, North Korea, and Venezuela. Bearish factors include (1) sharply reduced industrial metals demand, including for silver, due to the pandemic and the weak global economy, (2) the recent surge in the 10-year T-note yield to a 1-1/4 year high, which encourages investors to move out of non-interest-bearing metals and into better-yielding government debt, (3) optimism that Covid vaccines should be able to return the global economy to a full recovery, which has sparked long liquidation pressure in gold, and (4) record-high stock prices, which curb the safe-haven demand for gold and silver.
Gold Closes Lower On Stronger Dollar And Higher T-Note Yields (barchart.com)