Gold drops again as haven demand eases

by Sybilla Gross and Yihui Xie

Gold extended its decline after falling more than 2% Wednesday on signs there will be fewer Federal Reserve rate cuts than previously anticipated, and as easing trade tensions between the US and China sapped haven demand.

Bullion fell by more than 1% to around $3,140 an ounce on Thursday, the lowest level in more than a month. Yields on US Treasuries climbed on expectations the Fed will lower borrowing costs later than thought due to an improving economic outlook following the US-China trade truce. Higher yields and rates tend to be negative for non-interest bearing gold.

Progress in trade talks also added to bearish headwinds for the precious metal, with China suspending a ban on exports of items with both military and civil applications — likely including some rare earths — to 28 US companies. The detente between the world’s two largest economies has reduced gold’s haven appeal and led to a sharp rebound in risk assets this week. 

There could be further unwinding of long positions in gold, said Christopher Wong, an FX strategist at Oversea-Chinese Banking Corp., said. While some support should come in around $3,050-$3,150 an ounce, “gold may risk a deeper pullback towards $2,950 levels” if the support breaks, he said. 

Gold is still up nearly 20% this year, however, with prices peaking at a record above $3,500 an ounce in April. Investors had feared trade tensions stemming from Trump’s tariffs could spur faster inflation and a slowdown in growth, or even a recession.

Spot gold was down 1.2% to $3,139.77 an ounce as of 1:19 p.m. in Singapore. The Bloomberg Dollar Spot Index edged lower. Silver also fell, after falling more than 2% in the previous session. Palladium dropped slightly, while platinum was steady.

Copyright Bloomberg News