Gold Stung by Rising Bond Yields
By Joe Wallace
Gold prices wavered Wednesday, extending a volatile spell for
the market as climbing yields on U.S. government bonds sap
investors' appetite for the precious metal.
Futures contracts for delivering gold in December, which notched
a record high just last week, slipped 0.3% to $1,940.80 a troy
ounce in choppy trading. Prices moved in a wide range, between a
low of $1,874.20 and a high of $1,956.40.
Silver futures retreated, falling 2.7% to $25.36 a troy ounce on
the Comex division of the New York Mercantile Exchange.
The swings interrupted a historic rally in precious-metal
prices, which have soared as investors sought alternatives to
low-yielding bonds and a haven from the economic downturn caused by
coronavirus. Most-active gold futures hit an all-time closing high
of $2,069.40 a troy ounce on Aug. 6 and remain 27% higher than they
were at the end of 2019.
Treasury yields have picked up in recent sessions, curtailing
investors' appetite for gold and silver, which pay no income.
Yields on 10-year Treasury notes were on course to advance for a
fourth straight day Wednesday, lifted in part by the anticipation
of hefty debt auctions by the U.S. government.
Investors are bracing for more gyrations in gold prices. One
gauge of expected volatility, the Cboe Gold ETF Volatility Index,
has risen 65% over the past month, though it is well below its
recent peak in March.
Like the better-known VIX gauge that tracks volatility in
stocks, the index uses options prices to calculate how far traders
are expecting prices to move over the next month. The options
aren't tied to gold futures directly, but instead to shares in the
SPDR Gold Trust, the largest exchange-traded fund backed by
Adding to the choppiness in gold markets, novice investors
sought to sell the metal the moment prices stumbled, according to
Ole Hansen, Saxo Bank's head of commodity strategy.
"It was overdue, but probably now overextended," Mr. Hansen said
of the reversal in gold prices. "The fact the correction was as
deep as it has been was down to the fact there have been a lot of
new investors entering the market in the past few weeks."
Mr. Hansen expects gold prices to resume their ascent, albeit at
a slower pace.
"The reasons for holding gold and silver have not gone away at
all," he said, citing stimulus policies by central banks that have
depressed bond yields, as well as lingering uncertainty about the
outlook for the world economy.
Gold futures have become less liquid in recent months, according
to traders and analysts, meaning it is harder for investors to buy
or sell the amounts they want for the prices they expect. Some
players have dialed back trading activity due to dislocations
between prices for gold in different locations and at different
dates, exacerbating price moves.
In one such dislocation, contracts for delivering gold in
December are around $16 a troy ounce more expensive than contracts
for delivery in August. That gap is unusually wide, punishing
investors who avoid taking hold of physical bullion in New York by
selling near-dated futures and buying later-dated contracts.
Wednesday's decline put gold on course for its biggest two-day
drop since mid-March, when prices plunged as investors sold the
precious metal to raise cash during a period of turmoil in
financial markets. In dollar terms, gold's loss of $93.40 a troy
ounce on Tuesday was its biggest in more than seven years.
Despite the turbulence, many investors expect gold prices to
keep rising as the Federal Reserve pins down interest rates and
buys bonds to support the U.S. economy.
"People are looking for a place to put their money with yields
at zero," said Joe Foster, a portfolio manager at New York-based
investment firm VanEck. Prices could rise to $3,400 a troy ounce,
according to Mr. Foster, whose fund invests in shares of U.S. gold
Write to Joe Wallace at Joe.Wallace@wsj.com
(END) Dow Jones Newswires
August 12, 2020 09:10 ET (13:10 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.