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Gold Sinks With Wall Street as U.S. Bond Yields Run Riot

CommoditiesFeb 25, 2021 03:20PM ET
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By Barani Krishnan

Investing.com - Gold struggled to stay above mid-$1,700 territory Thursday, joining the plunge in most commodities and stocks on Wall Street after U.S. bond yields ran riot to the upside, triggering a so-called value-assets rally on bets the Covid-struck economy may do better than the Fed says.

Gold for April delivery on New York’s Comex settled down $22.50, or 1.3%, at $1,775.40 per ounce. It earlier tumbled to $1,764.25, nearing the June low of 1,759 hit last week.

Spot gold, which reflects real-time trades in bullion and which hedge funds and other money managers count on for direction more than futures, was down $33.19, or 1.9%, to $1,771.61 by 3:40 PM ET (20:40 GMT). 

“The faster the global bond yields rise, the sharper the fall is for gold,” said Ed Moya, senior markets strategist at New York’s OANDA. “The precious metal is having a rough 2021 and the only thing that can right the ship is if central banks thwart the trajectory of bond yields. The Fed will have plenty of opportunities to stem surging Treasury yields, but for now it seems they can be a little more patient.”

Wall Street’s Dow slumped more than 1% while the tech-laden Nasdaq lost even more, 3%, as the yield on the U.S. 10-year Treasury note surged above the 1.5% level not seen since February 2020, before the outbreak of the coronavirus pandemic.

Yields spiked after an unexpected slump in U.S. jobless claims to November lows triggered fears of faster inflation, spooking investors into reining in bullish bets on stocks. Nasdaq was the favorite target of sellers as it had run way ahead of the Dow and S&P 500, which looked more valuable compared to the grossly-inflated price-earnings ratios of stocks on the tech index, which included the likes of Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Google (NASDAQ:GOOGL).

While the selloff linked to inflation fears on Wall Street was understandable, gold’s casualty to the same was almost laughable, considering its long standing as an inflation hedge and insurance against both economic and political troubles.

Even more bizarre was the relative weakness in the Dollar Index, as gold went down. The dollar is an outright alternative to gold and typically moves in the opposite direction to the yellow metal. The Dollar Index, which pits the greenback against a basket of six currencies, fell a notch to 90.13.

But Bitcoin — the other suspect of late in gold’s weakness — lived up to its billing, rising 0.8% to recover from its own selloff earlier in the week. Bitcoin recently reached record highs above $58,000 as even the institutional crowd once loyal to gold have teed behind the granddaddy of cryptocurrencies, which the U.S. Treasury has a very poor opinion of.

Gold has suffered a series of setbacks since its futures hit record highs of nearly $2,090 an ounce in August. The decline has accelerated from November, after vaccine breakthroughs for the Covid-19 often raised unrealistic expectations for economic recovery from the pandemic.

The Dollar Index and even bitcoin gained at the expense of gold during most of these three months, assisted by the spike in the 10-year note. Bond yields have spiked numerous times in the last four months as investors bet that inflation and economic growth will surprise in the second half despite the Fed persistently downplaying expectations on both.

Gold Sinks With Wall Street as U.S. Bond Yields Run Riot
 

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Comments (13)
NLP NLP
NLP1 Feb 25, 2021 6:09PM ET
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Printing trillions of dollars, each one worth less than the one before. Trillions of dollars of debt in the inflated books (pardon the pun). Rising rates makes servicing the debt a trillion times harder. It will be capped otherwise the fed is shooting itself in the foot. I’ll stick to gold if it’s on sale.
Alan Rice
Alan Rice Feb 25, 2021 5:45PM ET
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Gold price Target: $1300.Crude price Target: $200/bbl.
Barani Krishnan
Barani Krishnan Feb 25, 2021 5:45PM ET
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Jacob Steinschlag He seems to have forgotten what $147 oil did to the world economy.
me ish
me ish Feb 25, 2021 5:01PM ET
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no, not surprising that gold sold off again - whilst the big US investment banks short the Comex market to artificially hold down the price of gold and silver - and have been doing for years, behind the scenes central banks all over the world are making the most of the relatively cheap prices and buying it up in tonnes. If you're a long term gold bull, you'll hold and understand that this is a temp market fix by the insiders that have to try to keep the value of the USD looking respectable, but the game will shortly be up, pardon the pun. There's a big squeeze coming, especially for silver.
Barani Krishnan
Barani Krishnan Feb 25, 2021 5:01PM ET
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me ish: What are you saying is a fact Wall Street will never acknowledge openly; and the collusion will continue.
me ish
me ish Feb 25, 2021 5:01PM ET
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Barani Krishnan  that is true, but they are losing all credibility - as are most politicians - the lies just keep getting more obvious and larger and larger and the internet keeps showing people the truth - which is just as well as the mainstream media which is vastly influenced by the likes of Gates and the CIA will never give us the truth ...." You can't handle the truth" Jack Nicholson!
Barani Krishnan
Barani Krishnan Feb 25, 2021 5:01PM ET
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Banks like JPM and Nova Scotia routinely do spoofing of metals trades. They get hauled up by the CTFC, slapped on wrists, fined some crazy dollars then let off again to do more nonsense. No one goes to jail. That's the problem. Someone should.
George Pichurov
George Pichurov Feb 25, 2021 4:33PM ET
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Jay and Joe thinking money printing is free of charge...
Wojciech Stefaniak
Wojciech Stefaniak Feb 25, 2021 4:12PM ET
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Just gobbledygook! To whom I should believe? One told sell, one told buy so I flew ... to the sky!
Abdelraziq Abuaisha
Abdelraziq Abuaisha Feb 25, 2021 4:09PM ET
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“Inflation” ,, the fed chair can lie about it, the fed chair maybe dosen’t know Dr. copper, but I’m sure dear writer you know Dr. copper very well, you deeply know the doctor doesn’t lie. I’m so excited to witness these big days of world change, it’s a better system to come. We need to see in better ways than what these capitalists want us to see, we need to think more about building the human, we need to think of serving all, not just making the greedy people satisfied. We mustn’t obey the injustice, we are free to fight to defend the right and correct the wrong :)
me ish
me ish Feb 25, 2021 4:09PM ET
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totally agree - and one of the best non violent ways to vote with your feet / money, is to invest outside of the system, which is bitcoin and some of the other amazing blockchain techs that will be the backbone of internet 2.0 and 5G - such as Cardano and Iota. These are tiny equivalent small caps now that will be huge in the next five to ten years.
Radu Urjan
Radu Urjan Feb 25, 2021 4:01PM ET
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Rising 10 and 30 year yields shouldn t be a sign of ECONOMIC EXPANSION???
me ish
me ish Feb 25, 2021 4:01PM ET
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no kidding - it's a sign that government debt is not so safe and looking riskier by the day, so people are wanting a lot more return for the relative risk - investing in US treasuries is soon to be as safe as investing in Argentinian or Venezuelan government bonds. The US will suffer what it's government and the CIA has been inflicting on many other countries around the world for decades, bullying and using it's power to print stupid amounts of the global reserve currency to fatten themselves up on the spoils - so fattened in fact, that they are one of the least healthiest nations in the world with a very low life expectancy - vastly lower now after last year's fiasco. Now, over one third of global trade is already by-passing the USD and that figure is increasing rapidly every year, alongside the fact that China is reducing it's amount of US treasury holdings.
Invest Right
Invest Right Feb 25, 2021 4:00PM ET
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BTC is actually struggling to stay above 50k and is very strongly correlated to equities/gold right now and inversely to bond yields. I will repeat what I've said before. If markets continue to selloff, whether gradually or violently, gold will also take a beating with them, even if the bull-case for it is present in the form of rising yields signalling inflation. The reason I believe is simply that gold sits in the portfolios of not just the frugal and traditional investors who prefer hard assets but also in those who are loaded to the hilt with over-hyped growth stocks. Also, with margin debt at record highs, even worse than pre-Covid, a selloff in equities is bound to force portfolio managers to sell gold to cover losses in the overbought names. I think the best time to get into gold would be when the equity sell-off stops, whenever that happens. When papa Powell comes to the rescue with more QE?
me ish
me ish Feb 25, 2021 4:00PM ET
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we all saw it in March 2020 - and in 2008 - they all sell off, but gold, silver and BTC will come bouncing back very quickly once the traders have sold off quickly to cover their massive margin call debts. And as with 2009, gold and silver will soar - and BTC will soar even more and many of the altcoins will soar 1000s of percent.
Invest Right
Invest Right Feb 25, 2021 4:00PM ET
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I fully agree. I'm only saying that the time to buy these inflation hedges (PM's, crypto) is not how but after the sell off. It might take many months or even until 2022 until the bottom as in 2000 and 2008 but one has to be patient.
Invest Right
Invest Right Feb 25, 2021 4:00PM ET
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Cesarin Toar
Cesarin Toar Feb 25, 2021 3:53PM ET
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The article is pointless, we´ve seen Gold going to the moon while interest rates are high, if you don´t believe me go back to the 1980's historical data, what happens now is that there is so much noise about instruments that can make you money long term, such as cryptos, being bought by uneducated retail investors that divert the attention over the real thing. Gold is in an uptrend (higher highs, higher lows) on an intra-year basis, if you don´t believe me go to the technical charts. Once retails investor are washed out from the cryptodream and stocks bubbles then Gold is going to show what a supercycle is and we will see prices going to USD 4.000, that helps balance the FED´s balance sheet. Don´t forget that Gold price is usually suppressed by the FED and big banks for a reason.
Barani Krishnan
Barani Krishnan Feb 25, 2021 3:53PM ET
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Cesarin Toar, looks like you've missed in the point in story; i.e. going for the headline instead of the content within. You're using historicals to make the same point that I did stating contemporary trends and facts. We're both implying the same thing: that gold is being oversold for very poor reasons. Bests.
Monte Schaszberger
Monte Schaszberger Feb 25, 2021 3:43PM ET
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The way that sounds its time to buy GOLD!!
Doitch Caso
Doitch Caso Feb 25, 2021 3:39PM ET
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Yo homies, my name is POWELL - I am feeling sick to my BOWEL- Because whether I like it or NOT - Can’t touch yields cuz they too HOT - So here is a ditty to hit the SPOT - Sing it with me like it’s all you GOT - Yeah - YCC, yeah you know ME - Yeah baby - YCC, yeah you know ME
Tim Str
Tim Str Feb 25, 2021 3:39PM ET
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Stick to your day job
Barani Krishnan
Barani Krishnan Feb 25, 2021 3:39PM ET
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Tim Str  I had to laugh.
Doitch Caso
Doitch Caso Feb 25, 2021 3:39PM ET
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i work at night brah :)
Jermaine .A
Jermaine .A Feb 25, 2021 3:36PM ET
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At this rate of bonds selling off, the fed will intervene sometime in March. It'll then become painfully obvious the fed can't withdraw from QE without a meltdown then the dollar will sell off big time. Gold and silver will rocket
Barani Krishnan
Barani Krishnan Feb 25, 2021 3:36PM ET
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Not an implausible argument.
me ish
me ish Feb 25, 2021 3:36PM ET
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that sounds pretty much like how it's going to play out - and the exponential growth of panic and meltdown will be phenomenal - so by all means hold some cash now, but I'd be holding a good 20-30% of wealth in gold, silver and crypto. You can flee a country and get to the other side of the world and still have access to your BTC - try doing that with half a million in gold or silver.
Barani Krishnan
Barani Krishnan Feb 25, 2021 3:36PM ET
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me ish  Appreciate your faith in the first two, but still a little queasy about the third. mate. With cryptos, all need to lose at times is lose access to a password, Just saying :)
Thatoyaona Thato
Thatoyaona Thato Feb 25, 2021 3:34PM ET
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So that means we sell on Gold right now
Jimmy Rebello
Jimmy Rebello Feb 25, 2021 3:34PM ET
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Fabio falec
falec Feb 25, 2021 3:34PM ET
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If you have physical, I am happy to buy at spot price
Barani Krishnan
Barani Krishnan Feb 25, 2021 3:34PM ET
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Jimmy Rebello  Right call.
Barani Krishnan
Barani Krishnan Feb 25, 2021 3:34PM ET
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Fabio falec  I wish I have some to sell you, Falec. Wishing you a prosperous month ahead, sir.
 
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