Commodity Market: Gold heads for second week of gains as US Treasury yields ease from pandemic highs

Spot Gold eased from recent two-month highs on Friday, but was still on track to register its second straight week of advance, as US Treasury yields continued to ease, while reducing the opportunity cost of holding the non-yielding metal.

US 10-year government bond yields dropped for a third day to 1.788% on Friday, after surging as high as 1.879% on January 18th, or their highest level since the start of the COVID-19 pandemic.

The precious metal has “managed to hold its ground even as the U.S. Fed became more hawkish, and that’s probably because real rates are negative,” DailyFX currency strategist Ilya Spivak was quoted as saying by Reuters.

“A little bit of rumbling to the upside in gold could be an initial knee-jerk appreciation that risk is actually tilted toward a dovish surprise, even if the Fed doesn’t do anything different, just because of where the market’s state of mind is,” Spivak added.

The Federal Open Market Committee will meet next week, with market focus being on any rate hike guidance.

A recent survey of economists by Reuters showed that the Federal Reserve might raise borrowing costs three times in 2022 to curb persistently high inflation. Median forecasts from the poll suggested the central bank could raise the target range for the federal funds rate to 0.75%-1.00% by year-end.

Although Gold is often used as a hedge against inflation, the commodity tends to be very sensitive to increases in US interest rates.

As of 10:14 GMT on Friday Spot Gold was edging down 0.27% to trade at $1,834.45 per troy ounce. Yesterday the yellow metal climbed as high as $1,847.95 per troy ounce, which has been its strongest price level since November 22nd 2021 ($1,849.16 per troy ounce).

The commodity looked set to register its second consecutive week of gains, while being up 0.92%.

Meanwhile, Gold futures for delivery in February were edging down 0.38% on the day to trade at $1,835.55 per troy ounce, while Silver futures for delivery in March were down 0.81% to trade at $24.515 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was edging down 0.12% to 95.657 on Friday. The DXY has rebounded from a two-month trough of 94.629, which it registered on January 14th.

Near-term investor interest rate expectations were little changed. According to CME’s FedWatch Tool, as of January 21st, investors saw a 5.6% chance of the Federal Reserve raising interest rates to the 0.25%-0.50% range at its policy meeting on January 25th-26th, compared to a 6.2% chance on January 20th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $1,841.14
R1 – $1,846.28
R2 – $1,853.09
R3 – $1,858.23
R4 – $1,863.37

S1 – $1,834.33
S2 – $1,829.19
S3 – $1,822.39
S4 – $1,815.58