Gold prices have fallen to their lowest since March, with shares of precious metal miners and related exchange-traded funds posting significant losses along with them.
Interest in the precious metal has weakened on the back of a rise in Treasury yields to their highest levels in 16 years, and overall strength in the U.S. dollar. That comes just five months after gold futures reached their second-highest settlement on record, at $2,055.70 on May 4.
“Investors’ ride on the ‘gold bus’ has been fun and exciting since earlier this year, but a convergence of bad news across the board emerged this week like a concrete wall, rerouting the yellow metal’s prices in retreat fashion,” Adam Koos, president at Libertas Wealth Management Group, told MarketWatch.
““Investors’ ride on the ‘gold bus’ has been fun and exciting since earlier this year, but a convergence of bad news across the board emerged this week like a concrete wall, rerouting the yellow metal’s prices in retreat fashion.””
On Wednesday, gold for December delivery
GC00,
GCZ23,
fell $6.70, or 0.4%, to settle at $1,834.80 an ounce on Comex.
Most-active gold futures have fallen to their lowest finish since March 9 — a significant drop after posting a settlement of $2,055.70 in early May, the second-highest settlement on record, according to Dow Jones Market Data.
Bad news for gold investments
“The cascade experienced since last week can be explained in multiple ways. The problem is, there’s not much good in between the lines,” said Koos.
He pointed out that the U.S. dollar continues to surprise as it climbs further, U.S. Federal Reserve Chairman Jerome Powell and the Fed “relentlessly continue hiking rates faster and in greater distance than anything we’ve seen since World War II.”
U.S. jobs data are also coming in “strong, smothering the fear trade in gold, all while yields climb to atmospheric levels, seemingly with plenty of gas in the tank,” he said.
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
touched a high above 5%, though was last down at 4.875% in Wednesday dealings. The 30-year rate ended Tuesday’s session at its highest since September 2007. The yield on the 10-year Treasury
BX:TMUBMUSD10Y,
meanwhile, ended Tuesday at 4.801%, the highest since August 2007.
Strength in the U.S. dollar, meanwhile, has also weighed on gold prices. The ICE U.S. Dollar index
DXY
was down 0.3% at 106.72 in Wednesday dealings, but trading up 0.5% for the week.
Read: U.S. dollar is on the cusp of a historic winning streak. But how much longer can the rally last?
Higher interest rates and a stronger dollar can undercut appetite for silver and gold, which don’t offer a coupon and are priced in U.S. dollars.
“So, when you get your T-chart out and start checking ‘good’ vs. ‘bad,’ the major forces that affect gold — interest rates, inflation, and the dollar — are all headed in the wrong direction, which is clearly being reflected in what has now turned into a seven-month low in gold,” said Koos.
Gold futures appeared headed for a so-called “death cross” — a technical term that generally indicates a bearish trend. It happens when an investment’s short-term moving average falls below a longer-term moving average.
Read: Gold appears headed for a ‘death cross’ just 5 months after teasing record highs
On Wednesday, the 50-day moving average for most-active gold futures was at $1,939.17, while the 200-day moving average was at $1,936.21, FactSet data show.
The losses in prices of gold have also contributed to declines in gold exchange-traded funds and shares of major gold miners.
The SPDR Gold Shares ETF
GLD
was trading at $168.71, headed for its lowest close since March.
Shares of gold miners have also declined, with the Philadelphia Gold and Silver Index
XAU
down nearly 15% year to date. Barrick Gold Corp.’s stock
GOLD,
is among the standouts, trading at $14.04 on the New York Stock Exchange, down a 10th consecutive session and poised for the lowest close since Nov. 3.
Supportive factors
Still, Jeff Klearman, portfolio manager at GraniteShares, which runs the GraniteShares Gold Trust
BAR,
detailed some factors that are supportive of gold prices.
Current interest rate levels are “likely to hinder economic growth and pressure equity markets lower, leaving open the possibility that the Fed may need to change its position and broadcast more ‘dovish’ monetary policy comments,” Jeff Klearman, portfolio manager at GraniteShares, which runs the GraniteShares Gold Trust
BAR,
told MarketWatch.
Meanwhile, elevated oil-price levels contribute to higher inflation, he said. U.S. oil futures on Wednesday settled at a five-week low, but are still 4.9% higher year to date.
High oil prices act as a tax, “perhaps reducing consumer spending…and slowing economic activity,” said Klearman. An economic slowdown can boost gold’s investment appeal.
Also, gold’s drop, including a 5.1% loss in prices for September, may have been overdone.
Peter Grant, vice president and senior metals strategist at Zaner Metals, told MarketWatch, that the gold market is “quite oversold” at this point so a dive below $1,800 in gold prices “may prove difficult initially.”
However, “as long as yields and the dollar are tracking higher, gold will remain under pressure,” said Grant. A drop to “fresh lows for the year would shift focus to the next Fibonacci level at $1,711.67,” he said, referring to a method of technical analysis used to determine support and resistance levels.
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