Gold prices slipped to their multi-month low-level on Thursday as the strengthening of the dollar and rising bond yields dented appeal for the safe-haven metal. The prices have breached an important level of Rs 45,000 per 10 grams on the Multi Commodity Exchange (MCX) on Thursday and were trading below Rs 44,800.
After a sharp rally in 2020, gold has slumped by more than 20 percent from its all-time high of above Rs 56,000 per 10 grams in August 2020.
"The fall in gold prices was led by a stronger US dollar and rising US Treasury yields. Developments over the COVID-19 vaccinations also pressured the yellow metal prices," said Ajay Kedia, Director, Kedia Advisory.
Analysts are of the view that the short-term trend for the yellow metal remains bearish amid weak fundamentals.
Here are the key reasons behind the fall in gold prices:
Rising Treasury yields
The US 10-year treasury yield extended gains to climb to a high of 1.49 percent, heading back towards a one-year high of 1.614 percent set last week on bets on a strong economic recovery aided by government stimulus and progress in vaccination programmes.
Higher US Treasury yields threatened gold's appeal as an inflation hedge as they increase the opportunity cost of holding bullion, which pays no returns, while the dollar rose against rivals.
The bond yields are inversely related to the bond prices. Both gold and Treasuries are considered to be safe-haven assets. There are opportunity costs of holding gold, which does not bear any yield, so investors rush towards bonds from gold when yields start rising.
US Stimulus Package delayed
The US Senate delayed a debate on a $1.9 trillion COVID-19 relief bill until at least Thursday. Easy money is supportive of gold. But a delay in the stimulus package dampened the sentiment.
Economy growth expectations
The hopes of economic recovery across the world with the opening up of business and expanding vaccination tend to divert the investors towards risky assets such as equity markets from gold, which is a safe haven asset.
Also, expectations of higher economic growth and inflation create hopes for the Federal Reserve to tighten its monetary policy and hike the interest rates, which is negative for gold prices.
Vaccine Developments
Analysts believe that the speedy rate of the COVID-19 vaccination will improve economic activities and pump prime growth. This further pressured the gold prices.
SPDR Gold Trust Holding
The inflows in gold exchange-traded funds were a major driver for the yellow metal prices in 2020. However, reports suggest that the holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, fell to their lowest since May 2020 on Wednesday.
Meanwhile, investors will now await Federal Reserve Chairman Jerome Powell’s remarks before a virtual Wall Street Journal Jobs Summit, for clues on the central bank’s monetary policy outlook.
First Published: Mar 4, 2021 3:47 PM IST
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