Rollercoaster in Gold Continues Amid Rising Treasury Yields, Stronger Dollar

Gold extended its losses in early trading on Wednesday, before rebounding sharply. The yellow metal fell by over 5% on Tuesday, marking its worst day in 7 years. The same day silver plummeted by almost 15%, the most damage it has seen in a day since 2008. The selloff in precious metals was widely attributed to rising US bond yields and a resurgent US dollar.

Treasury yields jumped as positive news relating to a coronavirus vaccine was released and investors digested upbeat economic data. US 10 year real yields and gold prices typically have an inverse relationship. Rising yields make non-yielding assets such as gold less appealing as an investment.

On Tuesday, Russian President Vladimir Putin announced that a locally developed vaccine for Covid-19 has been given regulatory approval. He added that his daughter had already been given the vaccine. Vaccination of the general public in Russia is expected to begin in October.

Risk appetite was also lifted by positive economic data, notably the US employment report which came in better than expected on Friday. Nonfarm payrolls increased by 1.763 million in July and the US unemployment rate fell to 10.2%.

Meanwhile, tensions between the US and China remain elevated as China stepped up military drills around East Asia and US Health and Human Services Secretary Alex Azar visited the self-governed island of Taiwan. The US dollar has been favored as a safe haven amid geopolitical uncertainty relating to Sino/US discord.

Peter Schiff of Euro Pacific Capital was nonchalant about the selloff in gold, tweeting: “Gold is finally moving by over $100 per ounce in a single day, but it’s down and not up. I guess that’s to be expected early in a bull market, as the biggest daily moves in bull markets are down. It’s not until near the end of bull markets that the biggest daily moves are up.”

Looking at the gold daily chart above, we can see that price bounced off trendline support in Wednesday trading, but currently remains below the key psychological level of $2,000.