With the U.S. and China moving to resolve a long drawn-out trade war, risk appetite has shifted and investors are selling off safety plays like gold and related ETFs.
Among the worst performing areas of the market on Thursday, the SPDR Gold Shares (NYSEArca: GLD) declined 1.6% and the VanEck Gold Miners ETF (NYSEArca: GDX) decreased 3.0%. Meanwhile, Comex gold futures were 1.6% lower to $1,469.6 per ounce.
“A gyration in market risk has continued to add upwards pressure to underlying gold allocations, while recent monetary policy guidance, strength in US equities, and potential trade deal headlines have obumbrated the market, capping the upside,” Christopher Louney, commodity strategist at RBC Capital Markets, wrote in a research note, according to MarketWatch. “We largely expect these trends to continue, and to balance out to ongoing interest in the space albeit with price consolidation before year-end – at least absent a significant risk-off event materializing.”
As trade tensions wane, a flight from safe haven assets helped push up yields. Higher real rates diminish the relative value offered by gold, which comes with with no yield that had been benefiting from a growing amount of negative-yielding debt earlier this year, according to Naufal Sanaullah, chief macro strategist at EIA All Weather Alpha Partners, Bloomberg reports.
“A large stock of positioning in precious metals has been built up on the long side, driven especially by ETF flows,” Sanaullahtold Bloomberg. “Real yields declined on FOMC, but have reversed that bounce and now metals are cracking important technical levels. So we believe precious metals have more downside to come.”
Furthermore, the U.S. dollar also strengthened, adding pressure commodities.
“What ultimately matters more for gold is the hard and exact inverse correlation to US yields and the US dollar,” Stephen Innes, market strategist of the Asia Pacific region at AxiTrader, said in a daily research note.
“With US 10-year nominal yields loitering around 1.85% and the dollar looking more attractive gold loses some of its shine,” he added.
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