The massive rally that pushed gold to record heights above $2,000 an ounce has come to an abrupt halt, with the haven metal heading for the biggest drop in seven years after bond yields spiked higher.
According to Bloomberg, treasuries and European bond yields climbed, cutting into the negative real rates that had supported the metal. The 10-year Treasury yield jumped the most since June ahead of an expected flood of government and corporate debt issuance. U.S. producer prices increased faster than expected.
“Today real rates clearly moved higher and that’s clearly what moved gold lower,” Michael Widmer, head of metals research at Bank of America Merrill Lynch, said by phone from London. “You had stronger PPI data out and I think when that data came out the market had another look at rates and expectations.”
Exchange-traded fund investors also took a breather, seeing back-to-back outflows for the first time since June. On Friday, State Street Corp.’s SPDR Gold Shares, the largest gold-backed ETF, saw its biggest outflow since March. Meanwhile, a Bloomberg Intelligence gauge of senior gold miners dropped the most intraday since March, down as much as 6%.
Metal tumbles as bond yields recover in sentiment shift
Stocks rallied, as investors in risk assets took some comfort from the U.S. president’s comment on potential tax cuts, strong Chinese economic data