Andrew Rudakov | Bloomberg | beautiful images
Gold prices continued to decline during Asian hours on Wednesday, a day after the precious metal plunged to record low levels for an overnight.
Prices fell more than 5% to $ 1,927.39 / ounce on Tuesday – the worst one-day drop in seven years and far from Friday̵7;s record high of $ 2,089.20. Spot gold price jumped above $ 2,000 for the first time last week.
By Wednesday morning, spot gold prices fell deeper – to $ 1,876.32, before rebounding to trade at $ 1,917.39 in the afternoon.
Analysts attributed that drop to increased US real yields due to the optimism surrounding the virus, among other factors. The dollar is also strengthening, which is bad news for gold as it means that the precious metal will be more expensive for holders of other currencies.
Treasury-bond yields soared on Tuesday, continuing to soar since the week before optimism soared on positive news about vaccines.
“US gold prices and 10-year real yields have a strong negative relationship,” said Vivek Dhar, energy and mining analyst at Commonwealth Bank of Australia. .
In such a case, the opportunity cost of holding gold, an unprofitable asset, is higher because investors are neglecting the return that would otherwise be earned from the profitable asset.
Vishnu Varathan, head of the economics and strategy division at Mizuho Bank, identified production increase due to a number of factors: vaccine hope, reduced number of infections and hospitalization rates in the US. A jump in US manufacturers’ data also helped boost optimism.
“These factors conspired to brutally eliminate Gold when it came to long crowded positions,” Varathan wrote in a Wednesday note.
There is positive news about the coronavirus front. On Tuesday, Russia said it had developed the world’s first coronavirus vaccine. According to CNBC’s Hopkins data analysis, the average daily incidence of 7 days was down 38% from two weeks ago.
Meanwhile, manufacturing prices in the US in July better than expected, up 0.6% compared with the expected increase of 0.3% according to estimates of Dow Jones.
“The risky appetite returning after encouraging economic numbers and news reports on a new effective coronavirus vaccine in Russia increases the risk appetite that reduces expectations for money stimulus. worse makes gold less attractive, “notes Phillip Futures, a brokerage firm.
“The US dollar’s rise is also no support for precious metals,” it added. The US dollar index was at 93,844 on Wednesday afternoon, up from a low of 92 in the past few weeks.
However, Dhar said it is not time to wipe out the gold.
“It is reasonable to shift the focus to 10-year US nominal yields, but we still do not believe that yesterday’s sharp drop in gold prices signals a return for precious metals,” he wrote in a note.
Dhar said topics of safe-haven demand for the metal, a weaker dollar, and falling yields will largely play a key role.
“Although gold is in an unprecedented environment, yesterday’s strong correction suggests that gold price volatility is likely to last for a while,” he concluded.
CNBC’s Will Feuer contributed to this report.