Gold plunges deeper amid spikes in dollar, US treasury yields

Onome Amuge

Gold prices continued a downward slide on Monday while the dollar and US treasury yields gained higher grounds, forcing investors to dump the non-yielding metal to focus on more attractive assets.

Spot gold shed 1.2 per cent to $1,679.67 per ounce, its lowest since early June, U.S gold futures also stumbled 1.2 per cent to stand at $1,677.40 per ounce while April gold futures lost $21.80 at $1,676.70.

Meanwhile, the U.S dollar appreciated a three-month high, while the US 10-year Treasury yield shifted closer to a more than one-year high, increasing the opportunity cost of holding gold, which pays no interest.
The yellow metal was so badly beaten that US Congressional approval of President Joe Biden’s $1.9 trillion covid-19 relief package, which would have raised inflation expectations, failed to keep it afloat, analysts commented.

Lukman Otunuga, senior research analyst at FXTM, a leading online financial trading and investment platform, said that gold’s lackluster performance in recent times is a sign that the precious metal is at the mercy of a strong dollar and rising bond yields.

The zero-yielding asset, he said, is not only trapped in a battle against rising yields but the prospects of higher interest rates which is an unsuitable environment to shine.

“Fundamentally, the pendulum is swinging in favor of bears, especially when factoring in how global sentiment is improving on vaccine rollouts and Covid-19 cases are falling globally,” he added.

Dwelling on gold’s precarious state, Bart Melek, head of commodity strategies at TD Securities said that the metal is likely to fall deeper towards $1,660.

On the other hand, Monika Kingsley, an independent financial markets analyst, raises optimism that gold is likely to experience a turnaround albeit at an uncertain time.

“Once the Fed moves to bring long-term rates under control through intervention, then real rates would be pressured to drop which would be a lifeline for gold. The real questions now are how far gold would drop before that and when the Fed move would happen,” she stated.