By Geoffrey Smith
Investing.com -- Gold prices stabilized around the $1,700 mark on Monday as concerns about the sustainability of the rally in equities started to dominate thinking ahead of a key week of corporate earnings.
Sellers were also deterred by signals of extreme near-term weakness in the economy coming from the oil market. Technical factors led to a freakish drop in the expiring front-month contract for U.S. crude, but even the new benchmark contract, for June, fell over 8% amid signs of sustained oversupply for the next couple of months at least.
By 11:30 AM ET (1530 GMT), gold prices for delivery on the Comex exchange were up 0.7% at $1,709.80 an ounce. Spot gold was up 0.6% at $1,693.78.
Silver futures, which were the worst performer in precious metals last week, rose 1.9% to $15.78 an ounce, while platinum futures rose 1.9% to $800.40. Support for platinum and sister metal palladium has been strengthened by a tentative improvement in the state of the global auto industry: Germany’s Volkswagen (DE:VOWG_p) and Daimler both reopened some plants on Monday, a day when Germany also allowed its car dealerships to reopen for the first time in over a month.
Demand for other havens was mixed: U.S. Treasury bond yields edged lower as some money came out of equities, but neither of the ultra-safe havens, the yen and Swiss franc, were able to make inroads against the dollar, whose benchmark index was effectively unchanged at 99.885. Eurozone sovereign yield spreads widened as calls for Spain and Italy for a common EU debt fund ahead of another summit on Thursday again put the spotlight on their debt sustainability risks.
The inverse correlation between real bond yields and gold has now firmly re-established itself after breaking down in the first quarter, Natasha Kaneva, head of commodities research at JPMorgan (NYSE:JPM), said in a note to clients at the end of last week.
“With the return to (zero interest rate policy) in the U.S., we see U.S. 10-year real yields dipping to -65bp by the end of 2Q before moving higher to around -40bp by the end of the year,” Kaneva and her team said. This translated into a peak gold price of between $1,800-$1,850 around the end of June and a peak quarterly price of $1,780 for the third quarter, they added.
Kaneva also expects silver to recover to $17.45 an ounce in the third quarter “before signs of an emerging economic recovery begin to pressure prices lower.”