The 30-year US Treasury Yields have slumped to a five month low, sending gold into a position of strength overnight. The precious metal has been given further bullish support from a weaker US dollar.
Bond yields have fallen to their lowest level since 11th February, while the greenback has been hit by fears that the economic recovery could stall due to rising Delta variant infections.
The latest unemployment report, issued yesterday (Thursday) shows that the number of American workers claiming unemployment benefits has once again started to rise. A total of 373,000 claims were made in the week to 03 July, a figure which includes 2000 new initial claims according to official numbers from the US Labor Department. According to a Reuters poll, analysts had expected to see a much lower figure, with 350,000 claims forecasted.
Tempus Inc’s senior currency trader Juan Perez said that these numbers are an indication that stimulus measures are here to stay with the Federal Reserve aware that current conditions remain disappointing, something which takes talk of tapering off the table. He said, “If these numbers continue not to be anything stellar, or that we’re not moving towards full employment, that leaves the Fed room to just take it easy and not necessarily think about a tapering timeline.”
This is significant because there had been earlier signs from the Federal Reserve that it may soon start to hold discussions around tapering. Realistically, this is not likely to happen anytime soon given the current bumpy economic situation.
TD Securities’ senior FX strategist Mazen Issa says there is increased expectation that the next few months could bring with them disappointing news on the recovery front, noting “While we are cautious in interpreting price action at a time of the year when liquidity is not as plentiful, we think markets are contemplating a potential growth scare as the Delta variant spreads and infections rise.”
The markets are already starting to react to this very real possibility, with Wall Street closing sharply lower yesterday (Thursday) due to a broad sell off provoked by uncertainty.
We have seen countless times over the last 18 months that gold comes into its own during pandemic-related uncertainty. With risk averse sentiment now spreading, this is an opportune moment to invest in gold. Act quickly.