Gold futures shed some of their luster on Wednesday after a jump in U.S. bond yields, undercut the competitive advantage of owning risk-free Treasuries over bullion.
Treasury rates punched higher overnight after early returns suggested that Democrats were on track to win both U.S. Senate seats in Georgia and thus control of Congress, an outcome that gives President-elect Joe Biden administration more room to roll out more debt to achieve his policy agendas.
The slump for gold comes after it touched a two-month high Tuesday amid the reports on the Georgia political races.
Market participants also attributed some of the slide in gold to investors consolidating some of their overnight gains.
“Gold and silver futures prices are lower in early U.S. trading Tuesday, on some normal profit taking from the shorter-term futures traders and some chart consolidation after gold hit a two-month high overnight and silver scored a four-month high,” wrote Jim Wyckoff, senior analyst at Kitco.com in a daily research note.
Democrats may take the Senate after Raphael Warnock won one of two Senate runoffs in Georgia early Wednesday, according to the Associated Press, bringing Democrats a seat closer to a Senate majority. Democratic challenger Jon Ossoff was leading Republican Sen. David Perdue also.
With control of the Senate in sight, Democratic lawmakers may now have scope to pass more aggressive fiscal measures that could weigh on the bond market through increased debt issuance and higher inflation expectations, according to analysts.
Over the long-term though, greater fiscal measures will likely add to gold’s value in the longer term though, with the Federal Reserve continuing to monetize some of the debt, bullish investors said.
“Technically, the February gold futures bulls have the firm overall near-term technical advantage amid a price uptrend in place on the daily bar chart,” Wyckoff wrote.
“Bulls’ next upside price objective is to produce a close in February futures above solid resistance at the November high of $1,973.30,” the strategist wrote, adding that the bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,900.
February gold was off $21, or 1.1%, to trade at $1,933.30 an ounce, but had hit a high intrasession at $1,962.50.
The 10-year Treasury yield note hit a peak at around 1.04%, marking its highest level since March. Higher yields can undercut appetite for safe-haven gold, which doesn’t offer a coupon.
Silver for March shed 23 cents, or 0.9%, meanwhile, to reach $27.41 an ounce, and had hit a intraday peak at $28.11.
Source: Marketwatch