Gold prices hit the lowest level in more than eight months on Tuesday as signs of a global economic recovery and rising bond yields dent the appeal of the precious metal. The price of gold fell to a low of $1,707 a troy ounce, down 18 per cent from a high of $2,072 in August, as investors cut their holdings of the metal that is typically considered a haven asset.
Holdings in gold-backed exchange traded funds, products that offer exposure to gold but can be bought and sold like a stock, fell by 14 tonnes on Monday, the biggest outflow seen this year, according to Commerzbank. Gold has been hit by a rally in global stock markets and expectations of continued stimulus measures from global central banks as economies recover from the heavy toll of Covid-19.
Gold does not provide streams of interest payments, so it tends to perform poorly as yields rise on other assets such as bonds. US real yields, which are adjusted for inflation expectations, have risen recently as investors expect President Joe Biden’s $1.9tn coronavirus stimulus package will stoke stronger US price growth.
We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer. Carsten Fritsch, an analyst at Commerzbank, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”. At the same time, gold is facing more competition from cryptocurrencies such as bitcoin that some investors consider to be a hedge against inflation, according to analysts at Citigroup. The price of bitcoin has rallied 55 per cent this year to $49,000.
