GOLD - USD - Risk-On Sent Dollar Lower - 10/22/2021 (GMT)

STATE OF THE MARKETS
Risk-On sent Dollar lower. US stocks continue their upward trajectory, with Dow (+0.43%) and S&P (+0.37%) briefly traded at new record highs on Wednesday, as stronger than expected earnings continue to fuel the rally. Improved risk appetite sent Dollar and bonds lower, with the spot Dollar index falling to 93.50 handle while the 10Y yields soared to 167 basis points – the highest in five months.

In the commodities market, crude rallied past the $83/bl mark – a level not seen since October 2014, after EIA reported the lowest level of inventories in three years. Gold was under pressure, below $1790/oz, as yields rose and the yellow metal lost its anti-inflationary appeal. Iron ore was little changed, trading in the $123/tn the figure as China’s steel output fell recently.

In the FX space, the comdolls continue to lead demand by wide margin across horizons, though demand for safe-haven Swiss increased as investors hedged their risks. Short term traders seemed to be taking profits on their short Yen trades, after the BoJ stimulus announcement sent Yen pairs to rally recently. Markets look for jobless claims, home sales and earnings reports from American Airlines (AAL), AT&T (T), Dow (DOW), and Intel (INTC) on Thursday.

OUR PICK – GOLD (XAU/USD)
Rising yields may cap the rise of the yellow metal. Recent bonds sell-off in anticipation of the Fed’s tapering and rate hike next year, sent bonds’ yields of various maturities higher than their coupon. The 10Y is now paying 1.65% versus 1.25% coupon, 5Y at 1.17% versus 0.875% coupon and the 2Y at 0.39% versus 0.25% coupon. The non-interest bearing gold might lose its appeal in light of rising yields. We also saw block selling orders at $1,790 levels, signaling pressure below the $1,800/oz mark.

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