Metals Stocks: Gold prices settle below $1,800 as bond yields rise

United States

Gold futures fell Tuesday to settle below the key $ 1,800 mark for the first time in over a week, with investors focused on a strong climb for benchmark bond rates, which can compete against bullion for haven bids.

The only reason for the gold price decline Tuesday is a sharp rise in the U.S. 10-year bond yield, Chintan Karnani, chief market analyst at Insignia Consultants, told MarketWatch, adding that there are some expectations that the 10-year bond yield will continue to rise for the rest of the month. 

Indeed, bond rates were aloft, touching the highest level in about a year, reflecting what some on Wall Street refer to as a risk-on environment centered on hope of progress toward a $ 1.9 trillion coronavirus relief package from the Biden administration, as well as declining cases of COVID-19 and an increasingly successful vaccine rollout.

April gold GCJ21, -1.48% GC00, -1.48% fell $ 24.20, or 1.3%, to settle at $ 1,799 an ounce, falling below the psychologically significant level of $ 1,800. Prices haven’t settled below that key level since Feb. 4, FactSet data show.

The price drop for bullion accelerated somewhat after the New York Fed’s Empire State business conditions index showed a rise of 8.6 points to 12.1 in February, marking the highest level of activity since July. Economists had expected a reading of 5.9, according to a survey by The Wall Street Journal.

Any reading above zero indicates improving conditions.

Meanwhile, silver for March delivery SIH21, +0.12% SI00, +0.12% settled nearly unchanged, a fraction of a cent lower at $ 27.325 an ounce.

Moves for the metals come after gold put in a weekly gain of around 0.6% on Friday, which was its first weekly climb since the week ended Jan. 22, according to FactSet data based on the most-active contract. Silver scored a weekly advance of more than 1%.

Bond yields were near the highest level since March of last year, with the 10-Treasury note TMUBMUSD10Y, 1.288% around 1.28%. Bond prices fall as yields rise. Richer yields for government bonds, however, can undercut appetite for gold, which doesn’t offer a coupon.

On top of that, measures of fear or implied volatility, as gauged by the Cboe Volatility Index VIX, +6.16%, were down to near historical averages after remaining elevated since the height of pandemic selling back in March. Lower readings of the VIX tend to imply growing appetite for assets considered risky like stocks and away for those perceived as havens like bonds and gold.

Karnani, however, doesn’t expect gold prices to fall all this week. “Physical gold demand in Asia will go through a period of low cyclical demand…but I expect value based buying to come up in gold ETFs and physical gold” anytime starting from Wednesday in Asia and London.”

“This should limit the current sell off,” he said, though “the overall trend in gold could be bearish.”

 The yellow metal “needs some bullish news to get a sustained rise,” said Karnani. “Short-term investors of gold are cautious about making new investments.”

Other metals traded on Comex ended higher. March copper HGH21, +1.25% tacked on 1.2% to $ 3.834 a pound. April platinum PLJ21, +0.85% settled at $ 1,279.60 an ounce, up 1.6%, and March palladium PAH21, +0.25% inched up by 0.2% to $ 2,388.20 an ounce.

“Chinese markets are of course closed this week, but New Year travel is rather restricted, leading to talk that domestic factories are continuing to operate,” said Edward Meir, analyst at ED&F Man Capital Markets, in a daily report. That means “metals demand should remain firm at a time when offtake typically levels off, but by the same logic, we should not get the usual postholiday demand bounce either.”