Gold Soars as Attention Turns Towards T-Bills Auctions

Today, gold has continued gaining ground despite an initial pullback. 

Gold futures rose for the second consecutive day yesterday, gaining 0.29% during the session and closing at the 1,721.80 level. On the other hand, silver futures fell by 0.20%, closing the session at the 26.130 level and giving up some of the gains it made in the previous session.

Gold’s recent strength is being linked to the US dollar’s weakness and to the fact that the 10-year Treasury yield stopped rallying. The US Dollar Index, which measures the dollar’s performance against a bundle of its main competitors, dropped by 0.15%, losing ground for the second consecutive day, and closed at the 91.82 level.

Similarly, the 10-year Treasury yield dropped by 0.45% during the session, also falling for the second consecutive day and closing at 1.521%. This is linked to an auction that took place yesterday which, contrary to the prevalent fears that were being fed by the weakness of the last one, attracted enough demand.


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“After the dog of a 7-year sale, there were fears developing that demand for Treasuries is eroding. But this sale dispensed with that notion, at least for today,” commented an analyst at Auction Economics.

Another factor to take into account to explain the gains is the rise in the US Consumer Price Index (CPI), as fears for higher inflation levels tend to favor gold and other precious metals. According to data released by the Labor Department, the CPI rose by 0.4% in February, in line with expectations after the previous month’s 0.3%.

More inflation is expected in the coming months, now that the US Congress approved the $1.9 trillion stimulus package and the Federal Reserve is going forward with its asset purchasing program. Despite this being a compelling argument, it is not clear whether this stimulus plan is big enough to overheat the economy, and people have been warning against the inflationary effects of asset purchases for more than a decade.

In any case, as we already mentioned, some expect inflationary pressures to rise in the near future, even though analysts believe that this effect may be temporary. Last week, Federal Reserve Chairman Jerome Powell said that he expected better job market figures as well as increases in consumer prices, though he does not see the economy overheating in the near future.

“We do expect that as the economy reopens and hopefully picks up, we’ll see inflation move up,” said Powell. “Compared to the economic scenarios we contemplated a year ago, it’s good to see where we are.”

Despite the Federal Reserve’s optimism and the fact that it is highly unlikely that it will raise interest rates until 2023, the markets took it as if he was hinting at an eventual rate hike.

Today, gold has continued gaining ground despite an initial pullback. By 10:18 GMT, gold rose by 0.65%, reaching the 1,732.95 level. Gold may continue advancing, as another Treasury bill auction is taking place today that could keep driving Treasury yields lower. Nevertheless, if today’s Treasury bill doesn’t go as expected and ends up pushing up Treasury yields, it could halt the rally.

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