Gold’s record highs come to an abrupt halt

New York — The huge rally that pushed gold to record highs above $2,000 an ounce has come to an abrupt halt, with the safe-haven metal heading for its biggest drop in seven years after bond yields spiked higher.

US treasuries and European bond yields climbed, cutting into the negative real rates that had supported the metal. The 10-year US treasury yield jumped the most since June ahead of an expected flood of government and corporate debt issuance. US producer prices increased faster than expected.

“Today, real rates clearly moved higher and that’s clearly what moved gold lower,” Michael Widmer, head of metals research at Bank of America Merrill Lynch, said in London. “You had stronger producer price index data out and I think when that data came out the market had another look at rates and expectations.”

Exchange-traded fund (ETF) investors also took a breather, seeing back-to-back outflows for the first time since June. On Friday, State Street’s SPDR gold shares, the largest gold-backed ETF, saw its biggest outflow since March. Meanwhile, a Bloomberg Intelligence gauge of senior gold miners dropped the most intraday since March, down as much as 5.7%.

Stocks rallied, as investors in risk assets took some comfort from the US president’s comment on potential tax cuts, strong Chinese economic data, and falling hospitalisation in California and New York.

Adding to positive market sentiment is a Covid-19 vaccine that Russian President Vladimir Putin said the country has cleared for use; it hopes to begin mass inoculation soon. Globally, coronavirus infections breached 20-million cases, after doubling in six weeks. It took six months to reach 10-million.

In the US, which accounts for a quarter of all cases, virus hospitalisation fell in hardest hit states, including New York, California and Texas.

Spot gold fell 4% to $1,945.44 an ounce at 11.43am in New York, heading for the biggest drop since June 2013. Futures for December delivery slid 4.2% to $1,953.80 on the Comex in New York.

“It’s quite abrupt and brutal, but the price increase before was even more abrupt and brutal,” Carsten Fritsch, a commodity analyst at Commerzbank, said by phone. “The trigger could be the sharp rise in bond yields, which caused some profit-taking then that cascaded. When people start to take profits, more will follow, and so we see this acceleration of price declines today.”

Bloomberg