Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges
Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.
The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.
The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.
“We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.
Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.
Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.
In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.
The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.
Gold Slips as Wall Street Gains Sour Appeal
Gold slipped 1% on Monday, with a dip in the dollar and U.S. Treasury yields offering little respite as U.S. equities gained, which dulled bullion’s appeal.
Spot gold was down 0.3% at $1,738.93 per ounce. U.S. gold futures settled 0.2% down at $1,738.1.
“Gold should be higher yet it’s not. That really speaks to a weak market if normal correlations (like a weaker dollar) are not holding up,” said David Madden, analyst at CMC Markets UK, adding gold could slip further if the dollar and yields advance.
Gold fell as much as 1% during the session as investors flocked to the dollar and government bonds, spooked by Turkey’s decision to replace its central bank head with a critic of high interest rates.
“If (Turkish) citizens are concerned that the lira is weak, they’d look to buy U.S. dollars or gold, but this is where the fear comes – that capital controls will stop money coming into the country …it could be tricky for people to get their hands on dollars, and in turn gold, in the next few weeks,” CMC’s Madden said.
Gains on Wall Street also pressured gold.
“Traders want to see gold above $1,750 and hold there before you start to see new money coming into this trade,” said Bob Haberkorn, senior market strategist, RJO Futures, adding the U.S Federal Reserve’s low-interest rate policy could boost prices by year-end.
Elsewhere, palladium dropped 1.1% to $2,606.24 per ounce and platinum shed 1.1% to $1,182.87. Russia’s Nornickel, a major palladium producer, shut a metallurgical processing facility in Russia’s border region with Norway and Finland to curb emissions.
The issues at Nornickel could “push the palladium market into a wider deficit this year which, combined with strong demand from tightening emissions standards, could keep prices elevated,” Heraeus Precious Metals said in a note.
Gold Slips on Dollar Rebound; Platinum Rally Pauses
Gold slipped on Friday as the dollar rebounded, while platinum took a breather after expectations of a rebound in industrial demand drove a rally to a more than six-year peak and put it on course for its best week in two months.
Spot gold fell 0.6% to $1,815.30 per ounce by 1009 GMT.
U.S. gold futures slipped 0.5% to $1,816.90.
The dollar edged up 0.2%, reducing gold’s appeal for other currency holders.
“The inverse relationship between gold and the dollar has been strong recently and the rebound in the dollar has had a negative impact,” David Madden, market analyst at CMC Markets UK, said.
Strength in European shares, which are set for a second consecutive week of gains, also weighed on safe-haven gold.
Still expectations for a stimulus package in the United States helped to put gold prices on course for a 0.2% rise this week, which would be its first weekly rise in three. Investors often buy gold to hedge possible risks of inflation that could be spurred by massive stimulus.
“Our thesis for the next year or two is that equities and gold are going to do well because of inflationary expectations and monetary and fiscal stimulus remain supportive for both,” said Hitesh Jain, lead analyst at Mumbai-based Yes Securities, adding that the metal could rise to $1,950 this year.
Spot platinum fell 1% to $1,222.47 an ounce after prices scaled a more than six-year peak of $1,268.88 on Thursday.
The autocatalyst metal was set for an 8.9% weekly gain, which would be its best since early December.
“Reports that some future and derivative exchanges have increased their margin requirements have put the brakes on the demand for platinum,” CMC’s Madden said.
But expectations for a rebound in industrial production and the automotive sector this year should lift the metal, he added.
Silver gained 0.2% to $26.99 an ounce and palladium rose 0.1% to $2,347.97.
Gold Gained Ahead of Joe Biden Inauguration 2021
Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.
The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.
He said, “The key factor appears to be the (U.S.) currency.”
As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.
Also, the effectiveness of the vaccines can not be ascertained until wider rollout.
Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.
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