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 London Metal Exchange (LME) discovered bags of stones instead of the nickel that underpinned a handful of its contracts at a warehouse in Rotterdam, the Netherlands, in a revelation that would deliver another blow to confidence in the embattled exchange. The amount of metal represents just 0.14 percent of live nickel inventories on the LME, worth about US$1.3 million at current prices, so the immediate effect on the metals markets is limited. However, the shock announcement has much wider implications. In an industry riddled with scandals, the LME’s contracts are viewed as unquestionably safe. The news that even a few of
Oil on Friday posted its worst weekly loss since the early months of the COVID-19 pandemic as banking turmoil poisoned investor sentiment. West Texas Intermediate for April delivery dropped 2.36 percent to US$66.74 per barrel, falling 12.96 percent for the week, the largest drop in almost three years. Brent crude for May delivery fell 2.32 percent to US$72.97, posting a weekly loss of 11.85 percent. The failure of Silicon Valley Bank and troubles at Credit Suisse Group AG drove investors from risk assets, with oil-options covering accelerating the sell-off. “Crude action this week reminded many of how quickly the commodity can be decimated by
Huawei Technologies Co (華為) has replaced more than 13,000 parts in its products that were hit by US trade sanctions, the Chinese tech giant’s founder said, according to a speech transcript from last month posted on Friday by a Chinese university. Ren Zhengfei (任正非) said Huawei had over the past three years replaced the 13,000 components with domestic Chinese substitutes, and had redesigned 4,000 circuit boards for its products, the transcript posted by Shanghai Jiao Tong University said. “As of now, our circuit board [production] has stabilized, because we have a supply of domestically produced components,” Ren said. He did not give details
SIGNIFICANT OBSTACLES: Talks that should take months are occurring in days as pressure mounts from abroad, with US$6 billion and 10,000 jobs at stake, sources said UBS AG was up against the clock yesterday in talks to finalize a mammoth takeover of its troubled rival, Credit Suisse Group AG and reassure investors before the markets reopen. UBS, Switzerland’s largest bank, was urged by authorities finalize a deal to avoid a wave of panic on the markets today. The Swiss nation’s two largest banks were in urgent negotiations this weekend with the country’s banking and regulatory authorities, several media outlets reported. The generally well-informed tabloid Blick said UBS was about to purchase Credit Suisse in a deal to be finalized during an exceptional meeting in Bern, Switzerland, bringing together the
RSS