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Gold up 1% on Evergrande Fallout, Pre-Fed Dip of U.S. Yields, Dollar By


© Reuters.

By Barani Krishnan – Gold rallied for a second day in a row as the dollar and U.S. Treasury yields tried to find their way amid continued pressure on risk markets from the debt crisis at China’s biggest property developer, Evergrande.

Uncertainty over the outcome of the Federal Open Market Committee’s two-day policy meeting that ends with Wednesday’s news conference by Fed Chairman Jay Powell also kept risk in check. The stock market rebounded in the early trading session before becoming volatile due to speculation that Evergrande would be able pay $83million in interest on bond borrowings.

At 93.243 at 11:30AM ET (23:30 GMT), the compared to six major currencies, led by euro, was slightly lower. At 1.314, the yield on the U.S. 10-year Treasury notes was slightly lower.

“Depending on how the Evergrande situation plays out with markets, gold could continue finding safe-haven buyers, or buying interest could evaporate once again as quickly as it appeared, particularly if the China government soothes nerves when China returns to work tomorrow,” said Jeff Halley, analyst at online trading platform OANDA.

“Either way, if the FOMC gives concrete guidance on a tapering timeline at Wednesday’s meeting, gold will resume its downward direction, as the former would inevitably lead to a stronger U.S. dollar.”

U.S. gold futures’ most active contract, , was up $15.05, or 0.9%, at $1,778.85 per ounce on New York’s Comex, after a session high of 1,782.70. When the Evergrande crisis burst, Dec gold was up 0.7%.

Halley pointed out that gold was still resistant at $1770 despite its two-day rebound.

“Even if risk sentiment remains negative, it is hard to see gold recapturing the latter. Support for gold is at $1742, $1720 per ounce and then longer-term support in $1675 area. Given gold’s recent price action, its path of least resistance remains lower despite the temporary respite.”

The Fed’s FOMC meeting could revisit the subject of tapering for the central bank’s stimulus program that has juiced stock prices over the past 18 months. Since March 2020’s COVID-19 breakout, the central banks has been purchasing $120 Billion in bonds and other assets to help support the economy. In addition, it has maintained interest rates close to zero.

The central bank’s Chairman Powell and senior colleagues have mixed messages about a taper of the stimulus. Market consensus is that any reduction in the rate will occur between November and December.

An absence of any immediate announcement on the taper could weigh on the dollar and Treasury yields and extend gold’s lifeline.

Sunil Kumar Dixit is the chief technical strategist of SK Charting in Kolkata. He said gold still needs to reclaim $1,800 to continue its upward trend.

“The main trend changes only upon a decisive trade above the $1,835 zone, and that has witnessed multiple failures,” Dixit said.