Gold succumbs to higher yields while palladium continues breaking records

GOLD is set to close the week on a softer note, after prices succumbed to rising global bond yields despite the US Federal Reserve saying it was too early to consider rolling back emergency support for the US economy and President Biden laying plans for a US$1.8 trillion stimulus package.

Palladium prices notched higher nearer to the US$3,000-an-ounce handle, making new highs on auto catalyst demand.

Gold prices this week had been consolidating in a narrow range ahead of the Federal Open Market Committee meeting on Wednesday. Although the central bank kept a dovish stance as expected, the Fed's statement released could not propel gold prices much higher than US$1,790 an ounce.

Traders liquidated long positions and gold prices fell to a two-week low before recovering at time of writing. Strength in the dollar on Thursday along with a surge in global bond yields undercut metal prices.

The limelight in the precious metals market continued to fall on palladium. Prices of the metal, used in catalytic converters to curb emissions in gasoline-powered vehicles, have surged to a record high on bets that economies emerging from the pandemic would fuel demand for cars.

Spot palladium prices continued to notch higher each day, hitting the highest on Thursday at US$2,965 while the active June futures contract traded on CME clocked a high of US$2,982. Spot prices have climbed more than 34 per cent this year, building on five straight annual gains.

The precious metal has been in a production deficit for 10 years as tighter pollution standards in Europe and China spurs demand for the metal from automakers. The expectation of further deficits as the world moves towards greener economies and traders focus on reflation trade strategies has many analysts targeting US$3,000 an ounce for 2021 for the metal.

Meanwhile, China, the world's biggest gold consumer, saw consumer demand in the first quarter of 2021 rise to 286.4 tonnes from the previous quarter, the World Gold Council (WGC) said on Thursday, Reuters reported, a stark contrast from global gold demand which sank to a 13-year low.

China's 2021 gold demand will revert to pre-pandemic levels if there are no dramatic changes to the global economic and geo-political situation, the WGC said.

Comex June Gold Futures (GCM21)

Gold jumped to its highest price this quarter last week as geopolitical risks and US Treasury yields falling from recent highs provided support. Coronavirus surges have revived fears of about possible lockdowns in parts of the world.

Short-term daily technical indicators have turned positive indicating further gains ahead. This week (at press time), the benchmark Comex futures contract faced headwinds from a jump in US 10-year Note yields on better economic data and prices have levelled off below US$1,790 going towards the end of the week.

The main trend is up according to daily technical charts, but short-term momentum is trending lower. A trade through the 100-day EMA at US$1,793 will signal a resumption of the uptrend, which would challenge the recent high of US$1,798.40. A move through US$1,723 would however ring warning bells.

The minor trend is currently down and this is controlling momentum. The new minor top is US$1,789.90. Taking out this level will shift momentum to the upside. A sustained move over US$1,800 will indicate that buyers are willing to press prices higher to build on momentum.

Immediate strong resistance is at US$1,860 followed by US$1,900.

• The writer is senior manager, commodities, Phillip Futures