Gold prices are under pressure

In Wednesday’s trade, Gold and Silver futures dropped up to 0.7%. 

Gold futures for April delivery decreased by 0.25%. Silver futures for May delivery was down by 0.70%. 

Spot gold increased by 0.1% and was trading at $1,716.51 per ounce. On Monday, the yellow metal hit its lowest since June 5 and dropped to $1,676.10. 

On Tuesday, the US House of Representatives voted to pass President Joe Biden’s $1.9 trillion coronavirus relief bill. 

Chintan Haria, Head of Product Development & Strategy of ICICI Prudential Asset Management Company, said that he is optimistic about gold on relative valuation with equities. Besides, there are uncertainties in the debt market.

Why is the gold price plummeting after 2020’s records?

The gold price, a safe-haven asset in times of uncertainty, was considered the most stable and one of the most profitable amid the coronavirus crisis. In March, the yellow metal dropped under $1,700 per ounce, which had not happened since June. This decline placed gold very far from the $2,000 it reached in August 2020.

Experts link this decline, especially the one experienced in recent weeks, to the increase in public debt’s profitability, which has led investors to choose fixed income over gold. The rise in bond yields, mainly in the US, is a signal that has led global investors to sell some of their positions in gold. It has impacted the precious metal’s price. 

Investors in the US, Europe, and Asia are selling heavily in gold. The metal is now experiencing its most challenging stage in the markets since the beginning of the pandemic. Meanwhile, not everything is negative in the medium term.

Chintan Haria explained that an uptick in inflation is likely due to the global central banks’ ultra-loose monetary policy. Since gold acts as a hedge against inflations, investors can consider around 10% allocation to their portfolio’s yellow metal. 

Hareesh V, Research Head Commodities at Geojit Financial Services, said that chances of physical demand recovery and US fiscal stimulus hopes limit the significant drop in the metal prices. 

Among other precious metals, silver today decreased by 0.4% to $25.78 an ounce. Meanwhile, palladium increased by 0.2% to $2,300 and platinum slipped by 1% to $1,156.94.

Gold traders keep an eye on the Fed’s two-day policy meeting next week. The ECB holds its monetary policy meeting. On Thursday, President Christine Legarde should do a briefing.