Gold dropped below the $1,900 mark on Friday as technical selling took over after an earlier recovery in the US dollar and Treasury yields sent prices tumbling, erasing most of bullion’s gains from the new year.
Spot gold fell 3.0% to $1,855.76 per ounce by noon EST after falling by 3.3% earlier, which was the biggest decline seen in two months. Likewise, US gold futures slid by as much as 3.4% in New York and are down 2.8%.
The plunge came as stock futures rose after data showed a sharp slowdown in US employment numbers, bolstering speculation on further stimulus. Gold’s initial drop was exacerbated after prices breached the 100-day moving average, a key technical level, according to Bloomberg analysis.
Gold has swung sharply since the start of 2021 as higher benchmark Treasury yields and growing expectations of economic support pressured prices, while a raging pandemic, uncertainty on a global economic recovery and expectations of rising inflation remain tailwinds for the metal.
“It is the first week of January and the staying power for positions tends to be low so moves can get exaggerated,” Tom Fitzpatrick, a Citigroup technical strategist, wrote to Bloomberg.
The range between roughly $1,849 and $1,855 is a key area to watch, given the move lower is similar to a pattern in November when yields and the dollar also pressured gold, Fitzpatrick said.
“Gold is having a major fundamental shift for many investors and they’re starting to abandon their safe haven trade for gold,” Edward Moya, senior market analyst at OANDA, told Reuters.
“You’re probably going to see that the Treasury market sees some strong flows and that’s taking away some of the appeal from gold,” Moya added.
Democrat control of the US Senate has raised bets for large stimulus measures, lifting the benchmark 10-year bond yield to its highest levels since March.
While gold has generally been seen as a hedge against the inflation and currency debasement that could result from widespread stimulus, that has changed as higher bond yields increase the opportunity cost of holding non-interest yielding bullion.
“We’re going to see a lot more of stimulus and that ultimately moves interest rates higher,” said Bart Melek, head of commodity strategies at TD Securities.
(With files from Bloomberg and Reuters)