(Bloomberg) — Gold extended declines, heading for a second straight monthly drop as surging bond yields hurt the metal’s allure.
Ten-year Treasury yields climbed to the highest in a year on Thursday, making gold less competitive because it doesn’t offer interest. Holdings in exchange-traded funds backed by the metal registered an eighth consecutive daily outflow, a sign investment demand is flagging.
Bullion is slumping this year as rates rise on bets that a brighter outlook for the global economy and higher inflation is just around the corner. Federal Reserve Chairman Jerome Powell this week assured investors that the central bank is in no rush to pull back stimulus, boosting demand for many raw materials while further reducing the appeal of bullion as a haven asset.
“The broad-based rally on the commodities markets is continuing to bypass gold completely,” Commerzbank AG analyst Carsten Fritsch said in a note. With a further rise in U.S. bond yields, even Fed Chair Powell’s renewed assurance of the current pace of bond purchases “did nothing to help gold. Liquidity is being spent on other investments at present, such as stocks,” while capital is still being withdrawn from the gold ETFs.
Goldman Sachs Group Inc. cut its gold-price forecast, pointing to a rotation into riskier assets as a reason for the metal’s under-performance.
Commerzbank’s Fritsch said he’s “still convinced that the present phase of ETF outflows will prove only temporary,” and that significant ETF inflows will be seen again as the year continues, which should then drive up the gold price. UBS Group AG analyst Giovanni Staunovo expects that gold might rebound on higher inflation readings in the second quarter, although “if nominal rates keep running higher it will be difficult.”
Spot gold fell 1.9% to $1,770.58 an ounce by 10:46 a.m. in New York, and has lost about 4% in February. Silver and platinum declined Thursday, while palladium rose. The Bloomberg Dollar Spot Index advanced.
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