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Gold hit its worst single-day decline as its price fell more than 5% but Treasury yields increased. Analysts have tied this movement to the progress in the development of COVID-19 vaccines.
Despite considerable global progress with the coronavirus pandemic, the price of gold fell as there is an increase in Treasury yields. The price decline marks the worst single-day decline for gold. Gold dropped over 5% to $1,927.39 per ounce, a considerable reduction from Friday’s record high of $2,089.20.
The recent price loss is the worst gold has been, in the last seven years. As Gold price reduced more than 5% on Tuesday, the prices declined further from $1,927.39 per ounce to $1,876.32 on Wednesday. Later in the day, the price of the precious metal jumped to $1,917.39.
Price of Gold Declines as Treasury Yield Increases
Regarding the instability of the price of Gold, mining and energy commodities analyst from the Commonwealth Bank of Australia Vivek Dhar said:
“Gold though is (in) an unprecedented environment and the sharp correction yesterday goes to show that (the) gold price volatility is likely to stick around for a while.”
Also, Dhar said the unstable gold price should not discourage investors. He is optimistic that there will be a rebound in the price of the precious metal.
However, some analysts believe that gold’s price plunge is a result of the rising U.S. yields. A report by CNBC revealed that the jump in Treasury yields is backed by positive news on coronavirus vaccine. Apart from the fall in the price of gold, the dollar has also been strengthening, following the vaccine news. This means that the purchase of gold has increased for holders of other currencies apart from dollars.
The Commonwealth Bank of Australia analyst also added:
“Gold prices and US 10 year real yields have held a strong negative relationship over time. That’s largely because when the U.S. yields rise, gold looks less attractive since gold earns no income.”
Regarding the Treasury yields, Vishu Varathan, Mizuho Bank’s head of economic and strategy, pegged the increase to a few factors. Firstly, Varathan mentioned the optimism about the COVID-19 vaccine, followed by the reduced number of infections and hospitalized patients in the U.S. According to him, a rise in the country’s producer data is also one of the factors.
“These factors conspired to take out Gold brutally given the crowded long positions”, Varatha added.
Vaccine Hopes Ineffective on Gold
As the coronavirus persists, the US government and some other countries have been working on producing a vaccine. On Tuesday, Russia announced it has developed the first COVID-19 vaccine after less than two months of human testing. In a report by Sahara Reporters New York, Vladimir Putin, the president of Russia, said the vaccine works “quite effectively” and has passed the needed checks.
According to a CNBC analysis compiled by Hopkins, daily U.S. coronavirus cases have reduced 38% over the last two weeks.