Gold trades to $1760.30 before slightly recovering
Gold pricing continues to be affected by rising yields inU.S. 10-year Treasury notes. Market sentiment continues to be under theassumption that as early as mid-November the Federal Reserve will begin totaper their asset purchases of $120 billion monthly. The most recent news isthe pace at which they will taper. According to the statement released lastweek of the last FOMC meeting, they plan to reduce their monthly purchases by$15 billion each month.
The Fed's purchases of assets are split between U.S. debt($80 billion) and MBS (mortgage-backed securities) purchases of $40 billion. Inother words, a 2 to 1 split between those two asset classes. That means thatthe most likely scenario is that each month they would taper $10 billion fromtheir purchases of treasury notes, and taper their MBS purchases by $5 billion.
Although it is the raising of real interest rates by theFederal Reserve which has not been scheduled to begin at the earliest in 2022,it has been the reduction of asset purchases and the knowledge that theinterest rate left off will begin shortly that has shaped current marketsentiment bidding yields higher on U.S. debt instruments.
Today the U.S. 10-year Treasury note gained 0.021 pointsand is currently yielding 1.596% in interest returns. Many analysts have goneon record saying that as long as yields continue to rise then the headwindscreated from that will continue to pressure gold to lower pricing.
The dollar was relatively neutral today providing not evenfractional headwinds as it gained 0.32 points, or +0.03%, and is currentlyfixed at 93.97. This is the first occasion that the dollar has gained in thelast four trading sessions. On Wednesday, October 13 it opened just above 94.50and by the close of the trading session finished at 94.07. This was followed byThursday and Friday's nominal moves which both resulted in lower pricing. Todaythe dollar traded to a higher high and a higher low, but only closedfractionally above Friday's close.
The wildcard that currently could be highly supportive andbullish of gold is a possible sell-off in U.S. equities. MarketWatch quoted OANDAanalyst Craig Erlam saying, “Unless markets start to price in bad newsfor the economy and stock markets, which may be a rational next step ifpolicymakers insist on tightening even as the recovery remains sluggish anddownside risks significant."
Lastly, it seems as though capital that would have formallyused gold as a speculative vehicle or inflationary hedge has shifted to Bitcoinas it continues to rally approaching its all-time high. Currently, cash Bitcoinprices are fixed (according to KU Coin) at $61,750, after factoring in today'sgain of 2%. However, Bitcoin futures gave up 0.72%, or $450, and are currentlyfixed at $61,625.
With a new offering of a futures-based Bitcoin ETF tomorrowthere could continue to be accelerated excitement in Bitcoin. One thing that Imust express is that if you thought there was intrinsic volatility in Bitcoin,which there certainly is, hold your hats on tight if you begin to venture intoan electronically traded bitcoin fund based on bitcoin futures. In the case ofa bitcoin futures ETF, you must add the volatility intrinsic to Bitcoin to thetremendous leverage offered by a futures contract.
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Wishing you, as always, good trading and goodhealth,
By Gary WagnerContributing tokitco.com
Follow @garyswagner
gary@thegoldforecast.comwww.thegoldforecast.com