Gold Eases Amid Higher Bonds Yields, Equities As Fear Trade Abates

(Kitco News) - Gold futures were weaker and near the session lows early Tuesday afternoon as demand for safe havens eased and money moved back into global equities, traders said.

As of 12:31 p.m. EDT, Comex August gold was down $22.50, or 1.7%, to $1,334.10 an ounce. September silver lost 17.4 cents, or 0.9%, to $20.13.

This occurred on a day when the Dow Jones Industrial Average was up by triple digits, hitting record highs.

“With gold, you’re seeing the fear trade come out,” said Charles Nedoss, senior market strategist with LaSalle Futures Group. “You’re seeing stocks put in new highs. You’ve seen a lot of money come out of bonds. You’re seeing money coming out of gold too and put back to work in equities.”

Silver held up better than gold, however, drawing some spillover support from strength in copper prices, Nedoss added. Silver has more industrial demand than gold.

Phil Flynn, senior market analyst with at Price Futures Group, commented that markets collectively started to factor out some of the worst-case fears that had been built into prices after the U.K.’s “Brexit” referendum last month to leave the European Union. The vote led to the resignation of the country’s prime minister. At the time, equities fell hard and the British pound even harder.

The country at least has a new prime minister – Theresa May is scheduled to take over Wednesday after being named Conservative Party leader, with David Cameron stepping down.

Much of the buying in recent weeks was the result of uncertainty facing global markets, and now at least some of this uncertainty was resolved by the news about a new U.K. prime minister, Flynn commented.

The British pound is stronger along with global stocks. Further, more stimulus is expected from the Bank of England and Bank of Japan, he said. The yield in U.S. 10-year Treasury yields, which moves inversely to the price, has risen to 1.502% from 1.434% late Monday, signaling selling pressure in this market also.

“Yields were at record lows. We’re bouncing off of those record-low yields,” Flynn said. “So the flight to safety has eased a little bit. The stock market is higher as well. A little bit of the worst-case scenario (about the effect of Brexit) has been alleviated a little bit, and that is driving the prices.”

Turning to the technical charts, Flynn said a key near-term level for him is the area around $1,338 to $1,340 for August gold, which the market has fallen below for now. A close below this could mean further weakness, he said.

“If we can hold $1,340 – and we won’t know until the end of the day – we can retest the high,” he said. “That’s more of the swing-trade kind of activity. But from a longer-term perspective, we think that a retest of $1,400 is still in the cards at some point. But there is a question of whether we’ll have a straight line up or (first) pull back a little.”’

Nedoss put his initial resistance for August gold around $1,349 an ounce. He put initial support at $1,321.10, commenting that a close below this could portend weakness to the $1,280-$1,290 area.

By Allen Sykora of Kitco News; asykora@kitco.com