Gold prices have fallen below the $1,900-an-ounce level and headed for their biggest two-day drop in more than seven years as a resurgent United States dollar prompted investors to reassess their positions after a record-breaking rally.
Spot gold – the price of the metal right now as opposed to sometime in the future – declined by as much as 2 percent to a near three-week low of $1,872.19 on Wednesday, resuming its free fall after a brief hiatus in early trade.
It was down 1.1 percent to $1,889.59 by 03:30 GMT, extending losses after a 6 percent plunge on Tuesday. US gold futures slid 2.4 percent to $1,900.
Silver also joined the slide, falling 2.8 percent to $24.11 per ounce after a 15 percent slump in the previous session.
The yen fell 0.24 percent to 106.76 per US dollar, its lowest level since July 24. Against a basket of currencies, the dollar extended a bounce made last Friday as US-China tensions ratcheted higher with President Donald Trump’s ban on China-based mobile apps TikTok and WeChat. It last stood at 93.846.
Investors tend to buy gold and silver during periods of rising economic uncertainty but switch to riskier assets such as stocks when they see signs of stability and growth.
“It looks like some of the euphoria is coming out of the gold market,” with prices possibly heading to about $1,800, IG Markets analyst Kyle Rodda said. “A lot hinges on US [Treasury bond] yields and the factors driving them at the moment. Also, the dollar’s strength will be something very important to watch over the next few days and weeks.”
A jump in US Treasury yields helped the dollar extend its winning streak, making gold more expensive for those holding other currencies. Higher bond yields also increase the opportunity cost of holding gold, which does not give investors any yield.
Benchmark US Treasury yields have climbed more than 10 basis points so far this month, amid improving risk appetite and an imminent flood of new bond issuance. The recent rebound reflects investor hopes that the coronavirus will be contained following Russia’s coronavirus vaccine announcement, analysts said.
“Optimism over possible tax relief, further economic stimulus in the US, positive economic data elsewhere and news of a Russian COVID-19 vaccine appears to have prompted investors to pull money from safe havens and put these into riskier assets,” said commodities strategists Warren Patterson and Wenyu Yao of Dutch bank ING in a research note sent to Al Jazeera.
Russian President Vladimir Putin said on Tuesday his country had become the first to grant regulatory approval to a COVID-19 vaccine after less than two months of human testing. The vaccine has, however, not yet completed its final trials.
But growing uncertainty about a US economic stimulus deal between Republicans and Democrats weighed on Asian stocks on Wednesday, possibly limiting the fall in gold prices.
Bullion’s gains for the year now stand at about 25 percent, as investors bought the metal as a hedge against a coronavirus-driven global slowdown and fears of currency weakness as central banks flood the economy with money to ease the blow.
“We can expect [bond] yields to rise further on expectations of a US aid package, which may pressure [gold] prices for the short-term,” said Tapan Patel, a senior analyst at HDFC Securities Ltd. But the correction may be short-lived, with bullion finding support amid slower economic growth.
“Higher US healthcare costs and the expansion of [central bank] balance sheets will continue to support gold prices over the longer term,” he added.
With central bank policies likely to remain “loose for the foreseeable future,” gold could move back towards $2,000, said ING’s Patterson.
Platinum lost 1 percent to $920.86 and palladium eased 0.4 percent to $2,082.90.