Gold Price Pressured as Upbeat Data and Less Dovish Fed Support Yields

Rising Treasury yields continue to weigh on gold. The Comex gold contract is on the way to record a second consecutive week of decline. Encouraging economic data and a less dovish Fed are the key factors pressuring the yellow metal.

US economic data have been upbeat. Consumer confidence jumped +19.3 points to 109.7 in March, the best reading since the pandemic. The increase also marks the biggest since April 2003. According to Conference Board’s report, “consumers’ assessment of current conditions and their short-term outlook improved significantly”. This signals that “economic growth is likely to strengthen further in the coming months”. However, it cautioned that the increase in inflation expectations might “temper spending intentions in the months ahead”. ADP’s report shows that the number of payrolls jumped +517K in March, after gaining +117K a month ago. However, this missed consensus of a +550K addition. The focus is on the nonfarm payrolls data due this Friday. The market anticipates a +633K gain in the number of payrolls in March, after adding +379K in February. The unemployment rate probably eased slightly to 6.1%.

At the testimony before Senate Banking Committee, Fed Chair Jerome Powell described the recent rise in bond yields as “orderly” and attributed it to a response to “news about vaccination and ultimately about growth”. He would be concerned if “conditions were to tighten to the point where they might threaten our recovery”. Yet, he added that the recent increase has come from “extraordinarily low levels”. Meanwhile, Powell at a NPR interview noted that the central bank would “very gradually” unwind the support provided during emergency times. These comments, signaling that the Fed is not very concerned about the yield situation and has no plan to tame the rise, have lifted yields further.

The chart below shows that the inverse relationship between gold price and long-dated, inflation-adjusted Treasury yield has remained very strong. If the economic recovery continues, firm inflation expectations should support inflation-adjusted yields. This could keep gold pressured.