Gold Heads for First Loss in Three Days With Yields Rebounding
(Bloomberg) -- Gold erased gains, heading for its first decline in three days as U.S. Treasury yields rebounded.
Yields are rising again with President Joe Biden expected to sign a $1.9 trillion pandemic-relief bill into law on Thursday, capping his first major legislative achievement and allowing aid to flow to individuals, businesses and local governments. Meanwhile, applications for U.S. jobless benefits fell more than forecast to the lowest since early November as virus vaccinations accelerated and states eased more business restrictions.
Rising yields have played havoc on the price of gold, which touched an all-time high in August. Rates have climbed as increased economic aid stokes inflation concerns, hampering demand for bullion because it doesn’t offer interest. Prospects for faster economic growth are also denting demand for the metal as a haven, helping send prices down more than 9% this year.
“Bond vigilantes continue to view the massive Biden $1.9 trillion stimulus bill with deep dread concern, both with massive supply in the pipeline as well as inflation pressures,” said Tai Wong, head of metals derivatives trading at BMO Capital Markets. “Selling in bonds is keeping yields elevated and has taken gold rather smartly off overnight highs.”
While the roll out of vaccines has seen diminishing investor interest for the traditional haven, Biden’s economic package may give a huge “tailwind” to gold in the long term, according to Commerzbank AG analyst Carsten Fritsch.
“The inflation risks are growing at the same time, as handing out $1,400 to nearly every American and topping up and extending unemployment benefits are likely to massively fuel consumption,” Fritsch said.
The European Central Bank pledged to ramp up buying government debt in coming months in a bid to a contain rising bond yields that threaten to derail the region’s economic recovery.
Spot gold fell 0.1% to $1,724.86 an ounce by 2 p.m. in New York. Futures for April delivery on the Comex settled little-changed at $1,722.60 an ounce. Spot silver and platinum also fell, while palladium rose. The Bloomberg Dollar Spot Index dropped 0.5%.
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