Gold Prices Buoyed By Falling Yields, Crude Oil Plunges On Viral Concerns

Gold prices traded modestly higher during Monday’s APAC morning session after falling for two days. A strengthening US Dollar appeared to be the primary weighing factor, while falling real yields helped to underpin prices. Crude oil prices plunged over 6% on Tuesday after Germany introduced an intensified lockdown going into Easter. A softer recovery outlook alongside a strengthening US Dollar may continue to weigh on energy prices.

A renewed wave of concerns surrounding Europe’s vaccine progress and new lockdown measures spooked risk appetite and buoyed demand for safety. As a result, the DXY US Dollar index advanced 0.65% to a two-week high of 92.40, exerting downward pressure on commodity prices. Meanwhile, the 10-year Treasury note price advanced for a third day as capital fled from risk assets into havens, pulling its yield lower. The real yield, as represented by the 10-year Treasury inflation-indexed security, has fallen to -0.69% from a 9-month high of -0.59%. A falling real yield may help to cushion bullion prices against the strengthening of the Greenback.

Gold Prices vs. 10-year Treasury Inflation-indexed Security

Gold Prices Buoyed by Falling Yields, Crude oil Plunges on Viral Concerns

Source: FRED

Fed Chair Jerome Powell reiterated his dovish stance and patience towards a transitory rise in inflation before the House Financial Service Committee on Tuesday. “We might see some upward pressure on prices. Our best view is that the effect on inflation will be neither particularly large nor persistent,” Mr. Powell said when addressing the potential impact of the $1.9 trillion stimulus package on inflation. His comments failed to calm the market however, with all three US equity indices ending lower amid fears about a potential third viral wave that hit Europe.

Crude oil prices tumbled over 6% on Tuesday, registering a four-day decline of 11% as a new wave of lockdown measures introduced in Germany, Italy and France dampened the outlook for energy demand. Traders were unwinding expectations for a full-blown recovery after oil prices registered an astonishing gain of 85% over the last four months. The next OPEC+ meeting scheduled on 1st April will be closely eyed for clues about the oil cartel’s take on recent changes in pandemic conditions and forward guidance for its output plan into summer.

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