(Bloomberg) — Gold recouped most of its losses from a sharp plunge at the start of Asian trading, but remains under pressure as bets mount that the U.S. Federal Reserve may soon start paring back its massive monetary stimulus.
Spot bullion fell more than 4% early Monday, dropping $60 in minutes, as the selloff following Friday’s better-than-expected employment data accelerated at the start of trading. Gold likely crashed lower after breaching a technical support level and triggering stop losses, all on a day when liquidity was low due to holidays in Japan and Singapore, said Marcus Garvey, head of metals strategy at Macquarie Group Ltd.
While prices bounced back from the initial drop, gold is still under strain. A close at current levels would be the lowest since April after the strong jobs numbers from the U.S. last week helped break the metal out of a weeks-long trading range around $1,800 an ounce. Inflation-adjusted Treasury yields spiked on Friday’s data, putting pressure on non-interest bearing gold.
Dallas Fed President Robert Kaplan’s comments that the central bank should start tapering its asset purchases sooner rather than later further fanned concerns that stimulus will be reined in.
Bullion was down 1% at $1,745.91 an ounce by 9:45 a.m. in London, after earlier touching its lowest since March, and coming close to its lowest in more than a year. In the futures market, over 3,000 contracts changed hands in a one-minute window — equivalent to over $500 million notional value — as activity surged in a typically quiet trading period.
Gold “recovered in the course of trading as bargain hunters took advantage of the low price to enter the market,” said Falkmar Butgereit, senior trader at refiner Heraeus Metals Germany GmbH & Co. KG. Still, “many investors now fear that the Fed will soon start tapering bond purchases, raising expectations of interest rate hikes in 2022/2023.”
Attention will turn to fresh economic data later this week to gauge the health of the recovery from coronavirus, as well as inflation. The consumer price index due Wednesday is expected to show a smaller increase than the previous month as pressures on supply chains caused by reopening ease. That may lend support to the view held by the Federal Reserve that inflationary pressures will prove transitory.
In other markets, silver lost 1.8% after earlier touching the lowest since December. Platinum declined while palladium was steady. The Bloomberg Dollar Spot Index was little changed.
More stories like this are available on bloomberg.com
Subscribe now to stay ahead with the most trusted business news source.
©2021 Bloomberg L.P.
