Gold records fifth price drop in two months

Gold prices fell to their lowest level in over two months on Wednesday as surging bond yields and the strengthening US dollar continued to weigh on the precious metal.

Spot gold is heading for its fifth consecutive decline, down 1.1% to $ 1,775.04 an ounce at 11:40 a.m. EST. US gold also fell 1.4% to $ 1,773.00 an ounce in New York.

Rising inflation expectations pushed US Treasury yields to their highest level since late February 2020. Breakeven inflation, a measure of expected inflation, is at its highest since August 2014 at 2 , 2%.

While bullion has traditionally been viewed as a hedge against inflation, higher yields have increased the opportunity cost of holding unproductive gold. The surge in rates in turn prompted the dollar to rebound from a three-week low, putting pressure on gold.

Better-than-expected US economic data also diminished gold’s appeal as a safe haven.

Retail sales rose the most in January in seven months, beating all estimates and suggesting that further stimulus checks helped spur a rebound in household demand. Manufacturers’ output also rose more than expected, a fourth consecutive monthly advance, showing factories continuing to recover from disruptions linked to the pandemic.

The publication of stronger-than-expected US retail sales “put pressure on defensive assets like gold,” Commerzbank AG Carsten Fritsch told Bloomberg. “The rising dollar and 10-year bond yields at 1.3% are other factors weighing on gold.”

Meanwhile, holdings of shares of SPDR Gold, the world’s largest bullion-backed exchange-traded fund, fell to their lowest since June. ETF purchases were one of the main drivers of gold’s rally to a record high in August and could put pressure on prices if cash outflows continue.

“An uncontrollable rally in global bond yields has dealt gold a fatal blow,” said Edward Moya, senior market analyst at Oanda Corp. “Yields increase on reflation bets, triggering an unwinding of many safe-haven trades. “