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Gold prices tumbled further into Asian hours on Wednesday, a day after the precious metal fell during the day to a record low day.
Prices fell more than 5% Tuesday to $ 1,927.39 per ounce – the worst one-day high in seven years and a far-reaching record high of Friday’s record high of $ 2,089.20. Spot gold prices had above the $ 2,000 level for the first time last week.
By Wednesday morning, the price of gold continued to fall – to $ 1,876.32, before returning to midday trading to trade at $ 1,917.39.
Analysts point to that tumbling up increasing US real yields on optimism about the virus, among other factors. The dollar has also strengthened, which is bad news for gold, as it means the precious metal will be more expensive for those who hold other currencies.
Treasury revenue jumped on Tuesday, continuing with its climb since last week as optimism spiked on positive news about vaccines.
“Gold prices and US 10-year real yields have maintained a strong negative relationship over time. This is largely because when US yields look up, gold looks less attractive because gold does not earning income, “said Vivek Dhar, Commonwealth Bank of Australia’s mining and energy analyst, in a note.
In such a scenario, the opportunity costs of holding gold, a non-yielding asset, are higher because investors prefer interest rates that would otherwise be earned in yielding assets.
Vishnu Varathan, chief economist and strategist at Mizuho Bank, pointed to the growing yields on a few factors: hopes of vaccination, declining number of infections and hospitalization rates in the US A jump in US production data also helped boost optimism, he added.
“These factors have played together to brutally take Gold out, given the folop long positions,” Varathan wrote Wednesday in a note.
However, gold is (in) an unusual environment and the sharp correction yesterday goes to show that the volatility of gold price is likely to linger for a while.
Vivek Dhar
Commonwealth Bank of Australia
There is also positive news on the front lines of coronavirus. Russia said on Tuesday that it had developed the first vaccine for coronavirus in the world. While the U.S. seven-day average of daily new cases dropped by 38% compared to two weeks ago, according to CNBC’s analysis of data compiled by Hopkins.
Meanwhile, the U.S. manufacturing price in July came in better than expected, with 0.6% rise versus an expected increase of 0.3% according to Dow Jones estimates.
“Risk appetite returned after encouraging economic numbers and news reports of a new effective vaccine for coronavirus in Russia, increased risk appetite again lowering expectations of further monetary stimulus making Gold less attractive,” said a note from broker Phillip Futures .
“The rising US dollar also did not provide support to precious metals,” it added. The US dollar index was at 93,844 on Wednesday afternoon, up from levels as low as 92 in the past few weeks.
However, Dhar said it is not time to write off gold yet.
“Shifting the focus to US 10-year nominal yields is plausible, but we are not yet convinced that the sharp fall in gold prices yesterday signals a U-turn in the precious metal,” he wrote in a note.
Dhar said the themes of demand for safe haven for the metal, a weaker dollar and falling yields will still play a role.
“However, gold is (in) an unusual environment and the sharp correction yesterday is going to show that the volatility of gold price is likely to go around for a while,” he concluded.
– Will Feuer of CNBC contributed to this report.
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