Gold, silver slump as US political risks fade, yields gain

[BENGALURU] Gold slumped more than 4 per cent on Friday and silver followed with a near 10 per cent plunge as prospects for a smooth transition of power in Washington and a jump in US Treasury yields hammered the precious complex.

Spot gold fell as low as US$1,828.36 and was last down 3.6 per cent at US$1,843.06 per ounce at 2.45pm EST (1945 GMT), en route to register its worst week since November. US gold futures settled down 4.1 per cent to US$1,835.40.

"Gold is having a major fundamental shift for many investors and they're starting to abandon their safe haven trade," said Edward Moya, senior market analyst at OANDA.

"You're probably going to see that the Treasury market sees some strong flows and that's taking away some of the appeal from gold." Democrat control of the US Senate has raised bets for large stimulus, lifting the benchmark 10-year bond yield to its highest since March.

Since US President Donald Trump has agreed to an orderly transition of power, there's been some "temporary profit-taking," said Jeffrey Sica, founder of Circle Squared Alternative Investments.

"Once gold broke below US$1,900, some of the momentum traders continued to execute sell orders." While gold has generally been seen as a hedge against the inflation that could result from widespread stimulus, especially last year, that has changed as higher bond yields increase the opportunity cost of holding non-interest yielding bullion.

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"We're going to see a lot more of stimulus and that ultimately moved interest rates higher," said Bart Melek, head of commodity strategies at TD Securities.

Some analysts also said a few investors could have also diverted funds to Bitcoin, which has extended a meteoric rally.

Silver slid 7.3 per cent at US$25.14 per ounce, after falling as much as 9.8 per cent, while palladium eased 2.6 per cent to US$2,356.23 per ounce. Both metals were set to face their worst week since November.

Platinum dipped 5 per cent to US$1,060.87, paring an earlier 6.2 per cent drop.

REUTERS