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8月 13, 2020

Gold prices dive amid vaccine hopes and rising Treasury yields

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Gold prices tumbled further during Asia hours on Wednesday, a day after the precious metal plunged to a record one-day low overnight.

Prices declined more than 5% to $1,927.39 per ounce on Tuesday – the worst single-day rout in seven years and a far cry from Friday’s record intraday high of $2,089.20. Spot gold prices had shot above the $2,000 level for the first time last week.

By Wednesday morning, spot gold prices plunged further – to $1,876.32, before clawing back gains to trade at $1,917.39 in the afternoon.

Analysts pegged that tumble to rising U.S. real yields on optimism surrounding the virus, among other factors. The dollar has also been strengthening, which is bad news for gold as it means the precious metal will be more expensive for those holding other currencies.

Treasury yields jumped on Tuesday, continuing its climb since last week as optimism spiked on positive vaccine news.

“Gold prices and  US 10 year real yields have held a strong negative relationship over time. That’s large because when US yields rise, gold looks less attractive since gold earns no income,” Vivek Dhar, mining and energy commodities analyst from Commonwealth Bank of Australia, said in a note.

In such a scenario, the opportunity cost of holding gold, a non-yielding asset, is higher as investors are foregoing interest that would be otherwise earned in yielding assets.

Vishnu Varathan, head of economics and strategy at Mizuho Bank pinned the rising yields on a few factors: vaccine hopes, the falling number of infections and hospitalization rates in the U.S. A jump in U.S. producer data also helped boost optimism, he added.

“These factors conspired to take out Gold brutally given the crowded long positions,” Varathan wrote in a note on Wednesday.

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