Gold Drops a Fifth Day as Bond Yield Rally Delivers ‘Fatal Blow’
A stack of one kilogram gold bullion bars sit inside a vault in Germany. (Photographer: Michaela Handrek-Rehle/Bloomberg)

Gold Drops a Fifth Day as Bond Yield Rally Delivers ‘Fatal Blow’

Gold fell to the lowest in more than two months as a stronger dollar and better-than-expected U.S. economic data diminished the appeal of the metal as a haven.

U.S. retail sales surged in January by the most in seven months, beating all estimates and suggesting fresh stimulus checks helped spur a rebound in household demand. Production at manufacturers also rose by more than forecast, a fourth straight monthly advance that shows factories continue to recover from pandemic-related disruptions.

Gold, which posted its biggest annual gain in a decade last year, headed for a fifth straight drop Wednesday as expectations for more economic aid and progress on vaccinations drive optimism over growth. The outlook is supporting yields and weighing on demand for non-interest-bearing bullion, while a bout of strength in the dollar curbs the allure of the metal as an alternative asset.

The release of stronger-than-expected U.S. retail sales “put defensive assets like gold under pressure,” said Carsten Fritsch, an analyst at Commerzbank AG. “The rallying dollar and 10-year bond yields at 1.3% are other factors weighing on gold.”

Further losses may be on the horizon after bullion’s 50-day moving average retreated below its 200-day counterpart, a so-called death cross pattern. Meanwhile, holdings in SPDR Gold Shares, the world’s largest bullion-backed exchange-traded fund, fell to the lowest since June. ETF purchases were a key driver of gold’s rally to a record in August and could further pressure prices if outflows are sustained.

Gold Drops a Fifth Day as Bond Yield Rally Delivers ‘Fatal Blow’

“A runaway rally in global bond yields has delivered a fatal blow to gold,” said Edward Moya, a senior market analyst at Oanda Corp. “Yields are rising on reflation bets, and that is triggering an unwind of many safe-haven trades.”

Spot gold fell 1.2% to $1,772.58 an ounce by 1:47 p.m. in New York, after slipping 1.3% on Tuesday. A fifth straight loss would be the longest run since March. Futures for April delivery on the Comex fell 1.5% to settle at $1,772.80 an ounce. Silver, palladium and platinum also retreated. The Bloomberg Dollar Spot Index rose 0.3%, while Treasury yields fluctuated after touching the highest in a year.

A key level for spot gold is about $1,765, a low reached in late November in the wake of optimism over vaccine announcements. A drop below that could pile further technical pressure on the metal.

“The next 48 hours will be key to gold,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, wrote in a note. “The fact it has been falling while inflation expectations have been going up is worrying and most likely due to the market expecting even higher yields and a stronger dollar.”

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