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13 JULY 2021

Gold Prices Gain Momentum as Treasury Yields Drop Below 1.3%

Gold prices saw a brief drop below the $1,800/oz mark on Monday, but strongly recovered to above $1,810/oz – increasing 1.1% ($20/oz) from its Monday low.

Gold prices gathered momentum this past week as U.S Treasury yields dipped below 1.3% (10-year) for the first time since February this year. Increased U.S infections of the new Delta Covid-19 strain has dented recovery expectations and improved the appeal for gold’s safe-haven status.

This week, investors’ focus will be on the release of the U.S. Consumer Price Index report on Tuesday – where economists expect the CPI to have risen 0.4% month-on-month from May – as well as Federal Reserve Chairman Powell’s testimony before Congress on Wednesday and Thursday. Powell is expected to provide clarity on the central bank’s asset purchases roadmap.

In other gold news, bullion banks in the London spot gold market can apply for exemption of the net stable funding ratio (NSFR), which forms part of the Basel III regulations for January 2022. The Bank of England’s Prudential Regulatory Authority said they, ‘decided to amend its approach to precious metal holdings related to deposit-taking and clearing activities (for bullion banks).’

More practically, this means that bullion banks need less fiat currency to cover the number of paper gold contracts they sell to the wholesale gold market…a very profitable loophole if your name is JP Morgan.

The yellow metal was last seen trading at $1,812/oz.

Jaco Lups
Analyst