Gold keeps moving down as yields move up

Gold has gone in a little over two months from being a favoured reflation bet to heading for its worst first quarter in almost four decades. The change of fortune comes as higher bond yields dent the appeal of bullion, which offers no interest. At the same time, optimism that the rollout of Covid-19 vaccines will drive a global recovery has pushed investors to switch from the traditional safe haven to other assets.

Gold prices slumped to a nine-month low last Friday, as strong US jobs data stoked optimism about a rapid economic rebound, while the US Federal Reserve also dampened hopes that it would move to rein in the soaring yields.

The afternoon price fixing on Friday in London was $1,696.25 an ounce, compared with $1,742.85 a week earlier. Thai selling prices were more resilient, at 25,650 baht per bahtweight (15.2 grammes), up 500 baht from the previous week.

Gold’s turnaround has been sharp. After enjoying its best year in a decade, it has slumped more than 10% in 2021. Inflows into exchange-traded funds, which supported gold’s surge to a record $2,075 last August, have gone into reverse. While some investors say higher inflation expectations should support gold, that’s being overshadowed for now by the effects of rising yields.

Investor disillusionment with bullion is partly being fuelled by the arrival of a new competitor: Bitcoin. Those fearing currency debasement now have an alternative asset whose supply is inherently limited, with the digital currency surging this year.

Still, it may be premature to write off gold, with signs of a recovery in the physical markets that were particularly hard hit last year.

Indian jewellery demand is rebounding from a two-decade low, with prices falling below the psychologically important level of 50,000 rupees per 10 grammes, which kept buyers away last year. In China, gold is trading at a premium to London prices after being cheaper for most of 2020, another sign of recovering demand.