Daily Market Recap - Gold stabilized in March, searching for upward traction

The price of gold has been recovering in recent sessions. After falling back to $1670 last week, the ounce of gold is back above its March highs at $1756.23 thanks to the slight drop in long-term rates. The U.S. 10-year yield lost more than 10 basis points from a high of 1.77% on Tuesday to 1.64% on Thursday morning.

After the sharp correction in February, the price of gold has since stabilized, observes Laurent Schwartz, President of “Comptoir National de l'Or”. On March 31st, the ounce of gold was quoted at 1440.61 euros, an increase of 0.17% over the month.

This makes little difference to the 2021 performance, which remains negative by -6.45%. Interestingly, the price of gold in euros held up much better than the price in dollars, which stood at 1,691.05, a decline of nearly 3%, bringing the 2021 performance in dollars to -10.6%.

Laurent Schwartz notes that the gap is widening with equities. The latter had an exceptional month, especially in Europe. The CAC 40 index rose by 6.4% in March, bringing its lead over the yellow metal to more than 15% by 2021. The advantage was tilted in favor to risky assets in March, which was benefiting from optimism over the rate of economic recovery which in turn held back gold prices due to rising interest rates.

In the United States, good employment figures were released in March, while worldwide, business and consumer confidence indicators showed signs of improving. However, this recovery seems to have hit a road bump, especially regarding the health situation in Europe, as we are now seeing a slight tightening in treasury yields.

The movement in long rates continues to be the main factor influencing the price of gold. For now, long rates are pulling back, but the underlying trend remains unquestionably bullish. In the current environment where market participants are increasingly optimistic about the global economic recovery, a significant decline in bond yields seems highly unlikely.

(Chart Source: Tradingview 08.04.2021)

The gold price is likely to be under pressure as long as long rates are rising. For rates to begin a downward trend, investors' outlook on growth and/or inflation would have to be revised downward, which is unlikely as long as monetary and fiscal policies are so expansionary and vaccine production is increasing.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.