Gold dropped to a five-month low Friday as the post-election price surge collapsed and investors redirect funds into industrial commodities and the stock market.
Gold for delivery in December dropped to a session low of $1,223.40 an ounce in morning trading on the Comex market in New York, down over $40 an ounce or 3% from Thursday’s close.
The metal touched a high of $1,338 late on Tuesday, but the rally in record volumes for the Comex market, soon evaporated.
The Financial Times reports a number of prominent hedge fund managers and billionaires running family offices have moved aggressively out of gold and into stocks following the election.
The gold price has an inverse correlation to interest rates as the metal is not income producing and investors have to rely on price appreciation for returns. Higher interest rates also boosts the dollar which usually move in the opposite direction of the gold price.
Gold stayed on the defensive, beset by enhanced growth expectations as… investors took on the view that the pro-growth policies of a new administration were good for paper assets
Gold’s performance is in stark contrast to predictions ahead of the election with many analysts seeing gold reaching $1,500 or beyond, citing increased safe haven buying as a major reason behind an upswing.
The rise in bond yields is not good for gold unless accompanied by a similar rise in inflation. The chart below shows that the move so far in 10-year bond yields has seen the real yield rise to 0.25% – the highest level since June.
Low real yields have provided a major source of support for gold this year, but depending on inflation expectations, this source of support has at least for now been sharply reduced.
Rising US bond yields and the brewing emerging markets crisis has seen strong demand for dollars post the election, and this marks yet another gold-negative development.
Rising US bond yields and the brewing emerging markets crisis has seen strong demand for dollars post the election, and this marks yet another gold-negative development
The import price of 62% Fe content ore at the port of Tianjin surged 7.4% to $79.70 per dry metric tonne on Thursday as the US presidential election added fuel to the fire of iron ore’s almost a month of unbroken gains.
According to The Steel Index an unnamed Australian miner sold 62% Fe Newman fines on the globalORE platform for $80.65.
Lower grade fines at the port of Qingdao shot up a whopping 12.4% on Friday to trade at $68.20 a tonne. 58% Fe content iron ore has risen 36% over the last four weeks while 65% Fe at the same Chinese port jumped to $91.70 a tonne.
On the Dalian Commodities Exchange in China iron ore futures again reached it’s daily price change limit of 6% to trade at over $90 a tonne.
While gold’s initial rally following the US presidential election has evaporated, the rally in industrial metals continued on Friday with the copper price jumping to a 17-month high.
In pre-regular hours trade on Friday copper for delivery in December gained 4% from Thursday’s close trading as high as $2.6525 per pound ($5,847 a tonne) in New York, the highest since mid-June 2015.
Copper has risen during 14 of the last 15 trading sessions, adding 27% in the process. After underperforming other metals and steelmaking raw materials in 2016, copper is now firmly in bull market territory with a 24.5% rise year-to-date.
The current upturn in the copper price is vulnerable to a correction in investor sentiment or profit-taking
In a research note Capital Economics cautions copper bulls that despite encouraging signs of falling warehouse stocks and the effect of recent production outages, the current upturn in the copper price is vulnerable to a correction in investor sentiment or profit-taking.