Gold began the year with lofty expectations on the back of a record high and its biggest annual gain in a decade. Instead, the precious metal is off to its worst start in 30 years.
Spot prices on Friday touched a seven-month low before erasing losses as the US dollar moved lower, although bullion is already down more than 6 percent this year.
The metal, which surged last year on pandemic-induced haven buying, low interest rates and stimulus spending, is now this year’s’s worst performer in the Bloomberg Commodity Index.
Photo: EPA-EFE
It is suddenly facing a host of unexpected stumbling blocks. Chief among those are the surprising resilience in the US dollar and a rally in USTreasury yields, as economic indicators show recovery from the COVID-19 pandemic is well under way.
With “rates going higher and inflation expectations peaking out, we’re seeing a lot of profit-taking in gold, and people are going from gold into industrial metals such as copper,” said Peter Thomas, senior vice president at Zaner Group in Chicago. “It’s a perfect storm.”
Through Thursday, gold’s start to the year was the worst since 1991, data compiled by Bloomberg showed.
A gain in US Treasury yields is weighing on demand for non-interest-bearing bullion, with the metal extending losses after forming a so-called death-cross pattern earlier this week. Yields on 10-year Treasuries climbed to the highest level in about a year this week.
Inflation expectations have also climbed, with 10-year US breakevens touching the highest since 2014 earlier this week.
Still, that might not be as supportive for gold as it typically would be, Julius Baer Group Ltd analyst Carsten Menke said.
A “rapid recovery will inevitably lead to higher inflation. This should not be positive for gold as it is a good kind of inflation, reflecting an acceleration of economic activity, and not a bad kind of inflation, signaling a loss of trust in the US dollar,” he said in a note.
The economic recovery should prompt investors to sell some of their holdings of the haven, he said.
There are signs that is already happening, with holdings in gold-backed exchange-traded funds falling to the lowest since July, data compiled by Bloomberg showed.
Holdings are down about 1 percent this year and sustained outflows could prove a serious headwind.
Spot gold was down 0.38 percent at US$1,782.2367 an ounce. Futures for April delivery on the Comex rose 0.1 percent to settle at US$1,777.40 an ounce.
Still, some see prospects for gold to make a comeback, betting that the inability of governments and central banks to normalize stimulus policy will support the metal.
Goldman Sachs Group Inc said in late January that with prospects for additional stimulus and US Federal Reserve interest rates on hold, the metal “remains a compelling investment for the medium-to long-term investor.”
“For us, the behavior of gold at the moment resembles that of a tsunami: In the first phase, the water recedes (the gold price falls), and then in the second phase it comes back all the more violently,” Commerzbank AG analyst Daniel Briesemann said. “At the end of the year, we now see gold at US$2,000 per ounce.”
Additional reporting by Reuters
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
The New Taiwan dollar and Taiwanese stocks surged on signs that trade tensions between the world’s top two economies might start easing and as US tech earnings boosted the outlook of the nation’s semiconductor exports. The NT dollar strengthened as much as 3.8 percent versus the US dollar to 30.815, the biggest intraday gain since January 2011, closing at NT$31.064. The benchmark TAIEX jumped 2.73 percent to outperform the region’s equity gauges. Outlook for global trade improved after China said it is assessing possible trade talks with the US, providing a boost for the nation’s currency and shares. As the NT dollar
PRESSURE EXPECTED: The appreciation of the NT dollar reflected expectations that Washington would press Taiwan to boost its currency against the US dollar, dealers said Taiwan’s export-oriented semiconductor and auto part manufacturers are expecting their margins to be affected by large foreign exchange losses as the New Taiwan dollar continued to appreciate sharply against the US dollar yesterday. Among major semiconductor manufacturers, ASE Technology Holding Co (日月光), the world’s largest integrated circuit (IC) packaging and testing services provider, said that whenever the NT dollar rises NT$1 against the greenback, its gross margin is cut by about 1.5 percent. The NT dollar traded as strong as NT$29.59 per US dollar before trimming gains to close NT$0.919, or 2.96 percent, higher at NT$30.145 yesterday in Taipei trading
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