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After days of relative strength in gold, it’s “here we go again” for those caught on the wrong side of the yellow metal.

A spike in U.S. bond yields to pre-pandemic highs tested anew on Tuesday the resolve of anyone who believed in gold as a safe haven.

Gold for April delivery on Comex settled down $24.20, or 1.3%, at $1,799 — a whisker beneath the $1,800 support. Earlier in the session, it fell to $1,788.40 — a two-week low that reminded longs of the early February horror of a 10-week bottom visited upon gold during another spike in yields.

Yields on the U.S. 10-year Treasury note hit a session high above 1.3%, their highest in a year. The Dollar Index, gold’s other rival, meanwhile held steady above 90.5.

“A runaway rally in global bond yields has delivered a fatal blow to gold,” said Ed Moya, senior markets strategist at online brokerage OANDA. “It doesn’t matter if you look at Bunds, Gilts, BTPs, and Treasuries, the story doesn’t change.”

“Global bond yields are rising on reflation bets and that is triggering an unwind of many safe-haven trades. Gold is traditionally an inflation hedge, but post-COVID that will only happen once central banks show they are unhappy with the sudden surge in bond yields.”

Gold has struggled to put in a meaningful recovery since tumbling to 10-week lows beneath $1,785 an ounce during the final week of January. Last week, it rose just 0.6%. Gold has been one of the few assets that haven’t really got much of a pop from this year’s cheap-money driven commodities rally that lifted almost everything from oil to soybean and even hog futures.

Bond yields rose as fixed income traders bet on the possibility of the Federal Reserve rolling back Covid-19 stimulus measures more quickly should economic recovery kick in more dynamically than thought in coming months.

The Fed has repeatedly denied a so-called tapering happening quickly.

But a decline in Covid-19 cases and hospitalizations in recent days are giving markets different ideas.

According to data from the U.S. Centers for Disease Control and the COVID Tracking Project, the number of seven-day average of new daily cases went from a peak of nearly 246,000 on January 12, to nearly 94,000 on February 13.

The seven-day average for Covid-19 hospitalizations, meanwhile, went from a peak of 132,474 on January 6 to 69,283 on February 13.

Moya of OANDA noted that gold did its best to avoid a potential “death cross” i.e. a technical selling pattern that could trigger some momentum selling if the daily chart shows the 50-day moving average crosses below the 200-day moving average.

“But further pain could be imminent,” he cautioned. “The dollar rebound might not be over if global bond yields continue to rally and that could be the bearish catalyst that sends gold down to the $1,750 level.”


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