- When compared with last year’s high, gold is down about ₹10,000 per 10 gram
- Benchmark US Treasury yields have risen to a near one-year high, souring the non-interest-bearing gold’s appeal.
Gold prices in India fell ₹1,100 or 2.3% this week, extending this year’s fall. On Friday, gold futures on MCX settled flat ₹46190 per 10 gram, taking its year-to-date decline to about ₹4,000 per 10 gram. When compared with last year’s high of ₹56,200, gold is down about ₹10,000 per 10 gram. According to Bloomberg, as of Thursday, gold’s start to this year was the worst since 1991.
Here are 5 things to know about gold price decline:
1) Gold has been under pressure as market players assess the implication of higher bond yields, Kotak Securities said in a note. Higher inflation expectations have pushed yields up, increasing the opportunity cost of holding non-yielding bullion.
2) Benchmark US Treasury yields have risen to a near one-year high, souring the non-interest-bearing metal’s appeal. On Comex, gold futures settled at $1,777 per ounce. Higher yields indicate an improving economic outlook as well as increased inflation and interest rate hike expectations.
3) Also, weighing on the gold price is weaker investor interest as is evident from ETF outflows. ETF purchases were a key driver of gold’s rally to a record in August and could further pressure prices if outflows are sustained.
4) “There is also an increasing debate about Bitcoin becoming digital gold and this is also visible from the diverging trend in these two assets. Gold remains under incessant selling pressure while Bitcoin surged to fresh record high level earlier this week,” Kotak Securities said in a note.
Nish Bhatt, Founder & CEO, Millwood Kane International, said: “The rise in the US Treasury yield and a stronger dollar, optimism of a larger economic stimulus package, and the vaccination drive has led to downside pressure on gold prices. The rising treasury yield is indicative of a recovery in the US economy. The yellow metal has also lost investor’s interest as the vaccination drive picks up pace. And going forward risk of a second wave of cases, easy liquidity, global economic recovery will guide gold prices.”
5) Though gold remains under pressure, there are supportive factors that may help limit losses say, analysts. Gold should still benefit from continued loose monetary policy and low real interest rates this year, they say.
“While rising yield point towards the possibility of rate hikes, central banks have maintained their accommodative stance. Meanwhile, stimulus measures are likely to continue. US President Biden tweeted that he wants to go big on the COVID-19 relief package. Also, rising price pressure may increase gold’s appeal as an inflation hedge,” Kotak said.