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High-yielding US bonds clip price of gold in first quarter

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Analysis by Golden FX Link business manager Nhim Kosol.

High-yielding US bonds clip price of gold in first quarter

The gradual strengthening of the greenback along with rising US Treasury yields and an improving American economy has softened the price of gold in the first quarter of this year.

Investors are starting to eye lucrative US bonds after the market witnessed a 10-year bond price rise from 0.917 per cent in early January to 1.726 per cent in March.

These prevailing indicators have continued to undermine the gold price since the beginning of this year, and the downward price movement is likely to continue as more positive signals emerge from Washington.

President Joe Biden’s success in getting his economic recovery package approved combined with several US Treasury policies have further bolstered the US bond market, Reuters reported on Tuesday.

US Secretary of the Treasury Janet Yellen also sees positive growth in the domestic economy after Biden’s $1.9 trillion stimulus plan was approved.

She said she believed that with the economic recovery plan, the number of employed people in the US will return to full by next year.

CNBC reported last week that US Federal Reserve chairman Jerome Powell had confirmed that the central bank will maintain its interest rates at near zero per cent until 2023.

Since the Covid-19 outbreak, investors have sought greater refuge in gold as a financial instrument to hedge their resources.

But keeping bullion is not a good option when another financial instrument – the rate of interest – is rising in value as gold does not receive interest and storing it requires a fee.

This will nudge investors into considering selling gold for a profit and investing in US bonds seeing rising interest rates.

According to the technical analysis, the price of gold has moved in a bearish flow and run below the average line of $50.

Investors can therefore use the opportunity to sell in the range of $1,755 to $1,740 per ounce by setting the stop-loss function at $1,765 and the take-profit function at $1,700 to $1,685 an ounce.

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