Gold prices drop as U.S. 10-year note hits 9-month high around 1%

Gold futures settled with a loss of more than 2% on Wednesday as a jump in U.S. bond yields undercut the competitive advantage of owning risk-free Treasuries over bullion.

“Rising long-term Treasury yields are a negative headwind for gold,” said Michael Armbruster, managing partner at Altavest. “If the 10-year Treasury yield continues to rise, gold is likely to move lower.”

The 10-year Treasury yield note BX:TMUBMUSD10Y hit a peak near 1.06%, marking its highest level since March. Higher yields can undercut appetite for safe-haven gold, which doesn’t offer a coupon.

The runoff elections for the U.S. Senate in Georgia have been closely watched Wednesday and if the Democrats sweep the state, “that will likely put further upward pressure on Treasury yields, so…gold could move lower in the short run even if the U.S. dollar index continues to weaken,” Armbruster told MarketWatch.

Against that backdrop, February gold GCH21, +0.48% GC00, 0.14% lost $45.80, or 2.3%, to settle at $1,908.60 an ounce, after hitting an intraday high of $1,962.50.

Prices edged up to $1,912.40 in electronic trading Wednesday afternoon, shortly after the release of minutes from the Federal Reserve’s December meeting.

Silver for March SIH21, 0.00% shed 60 cents, or 2.2%, meanwhile, to end at $27.042 an ounce.

The slump for gold comes after it touched a two-month high Tuesday amid the reports on the Georgia political races.

U.S. Treasury yields rose overnight after early vote counts 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.

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.

At some point, the Federal Reserve “will not tolerate rising Treasury rates and will implement their yield curve control policy framework,” Armbruster said. “If the Fed ever announces a Yield Curve Control policy, that would be massively bullish for gold.”

Market participants also attributed some of gold’s slide on Wednesday to investors consolidating some of their overnight gains.

Gold and silver futures prices are lower 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.

“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,” he 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.

Gold prices also moved lower even as data on U.S. private sector employment fell in December, shedding 123,000 jobs to mark the first decline since April, according to the ADP National Employment Report.

Rounding out action on Comex Wednesday, March copper HGH21, 0.20% added 0.3% to $3.6505 a pound to mark another settlement at the highest price for a most-active contract since February 2013.

Copper has been supported in part by “fresh supply fears surfacing in Peru that have resulted in blocked shipments from a mine involved in the labor dispute,” according to analysts at Zaner Metals.

April platinum PLJ21, 0.32% shed 0.8% to $1,110.20 an ounce and March palladium PAH21, 0.26%settled at $2,448.10 an ounce, down 1.8%.

Sources - Market Watch

Reporter - Myra P. Saefong and Mark DeCambre