Gold on Tuesday suffered its worst trading day in 17 months after a recovery in the value of the US dollar and seven-year highs for yields on the country's government bonds.
The most active gold futures contract on the Comex market in New York dropped to a low of $1,288.20 an ounce, down over 2% or more than $28 an ounce compared to Monday's settlement. Volumes were massive with 43m ounces of June delivery gold traded by early afternoon. Today's performance was the sharpest decline since mid-December 2016 when gold gave up $33/ounce, trading at $1,127 per ounce.
The price of gold and the US dollar usually move in the opposite direction and the greenback bounced back on Tuesday with the index against the country's major trading partners recovering to 93.2. The US dollar's all-time peak of 164.7 was reached in February 1985. That coincided with a bottom in the price of gold of $284.25 an ounce.
Upbeat retail sales data released on Tuesday fueled bets the US Federal Reserve may raise rates three more times this year. That prompted a spike for yield on US benchmark 10-year Treasurys to a seven year high above 3.05%. Yields on US government bonds have a strong inverse correlation to the gold price as the metal produces no income and investors have to rely on price appreciation for returns.
Rising yields, a stronger dollar and sliding stocks are fast becoming a familiar and uncomfortable cocktail for investors. Now violence in the Middle East, the U.S.-China trade spat, uncertainty on Italy’s government and global growth concerns are helping cement the prevailing sentiment.
“Markets don’t know where to look, they don’t know where to focus,” said Samantha Azzarello, global market strategist for JPMorgan ETFs, said in an interview at Bloomberg’s New York headquarters. “It’s odd — rates are going up and we’re late cycle, and then volatility is back after volatility being so low, almost painfully low. And then I think clouds of uncertainty coming from Washington and geopolitics lays on top of all of it.”
Investors pulled out of gold stocks with sharp losses across bullion boards.
The world's top producer during the first quarter of this year Denver-based Newmont Mining fell 2.1% and is now worth $20.3 billion in New York.
Barrick Gold also retreated and investors in the Toronto-based company are now nursing a 13.3% decline in the value of the stock this year.
World number four producer Goldcorp declined just under 2% for a $11.7 billion market value. The Vancouver-based company, together with Newmont and streaming and royalty firm Royal Gold, are the only stocks in the top tier to enjoy a positive 2018.