Gold Plunges on Higher Treasury Yields and Stronger Dollar


Gold extended its losses from the previous sessions and plunged close to a six-week low earlier in today’s session. The yellow metal was pulled down by the higher U.S. Treasury yields and a firmer dollar. Higher bond yields increase the opportunity cost for holding the non-interest yielding bullion, while the stronger dollar makes the precious metal more expensive for investors using other currencies. The 10-year yield held steady above one percent while the dollar climbs near a three-week high.

Spot gold prices fell by more than 4% last Friday and dropped by more than 1% today. It is currently trading at $1,849.73 per ounce as of 0902 GMT.

Stephen Innes, the chief global market strategist at Axi, noted that the glory days of the bullion are over. The higher yields in the U.S. are starting to affect pricing and market participants were not prepared for the dollar’s upward trend. Another factor that could negatively impact pricing is the possibility for the Federal Reserve to raise interest rates before 2023.

Jigar Trivedi, a commodities analyst at Mumbai-based Anand Rathi Shares, added that U.S. political stability is pulling down gold prices while the expected quicker economic recovery and more fiscal stimulus is boosting the greenback. But he believes that investors will still buy gold at dips since the interest rates remain very low and the coronavirus remains out of control.

Meanwhile, data from the Labor Department showed that the American economy failed to maintain employment growth in December and shed jobs for the first time in eight months. Layoffs surged to 18.9% due to the impact of COVID-19. But a recession is not likely because of the approval of pandemic relief late last month. But in response, President-elect Joe Biden hinted at additional direct stimulus payments to families.

Richard Clarida, vice chairman for the Federal Reserve, also commented that the economy was headed for an impressive year because of the possibility of larger government spending and COVID-19 vaccines.

In a related development, market speculators raised their bullish stance in COMEX gold contracts in the week that ended on January 5.

In physical trading, gold discounts in China plunged to their level in more than six months as a stronger yuan bolstered demand