Daily Management Review

Investors are selling off gold, optimism is growing


Gold fell to November's values of $1770 an ounce. The metal lost more than 4% in five days. The decline was due to expectations of global economic growth as well as a hike in US interest rates. Assets of exchange-traded funds, investing in gold, lost almost 40 tons in three weeks and returned to values of 3.29 thousand tons half a year ago.

Joi Ito
Joi Ito
On Wednesday, February 17, gold quotations on the global spot market hit a three-month low. According to Reuters, the metal was down 1.3 percent to $1770.55 a troy ounce, its lowest since Nov. 30 last year. Gold fell 4.2 per cent in five days of uninterrupted declines and almost 10 per cent from January's highs.

The return of prices to multi-month lows is due to optimistic expectations about the prospects for the global economy. According to the February Bank of America (BofA) poll of portfolio managers, a record number of respondents expect the global economy to accelerate over the next 12 months. Investor optimism is linked to the global decline in the spread of the coronavirus and the accelerating pace of vaccination.

Additional pressure on the metal's value comes from rising rates in the United States. On Wednesday, the yield on 10-year US government bonds reached 1.33% p.a., the highest since February 27, 2020. Since the start of the year yields have risen by 40 bp, with more than 17 bp in the last week alone. Markets are expecting a significant injection of cash into the US economy under the $1.9 trillion fiscal stimulus programme backed by President Joe Biden.

In such conditions professional investors began to actively reduce investments in gold. According to Bloomberg, total assets of exchange-traded funds declined by more than 3 tonnes to almost 3.29 thousand tonnes by the end of February 16, having updated the minimum since July 21 last year. In three weeks of steady decline, they have fallen by almost 40 tonnes.

source: bloomberg.com