Gold Steadies After Treasury Yields Drop Amid Investor Caution

Gold Steadies After Treasury Yields Drop Amid Investor Caution
(Bloomberg) — Gold steadied as Treasury yields declined, following bullion’s biggest drop in two months.

European stocks and U.S. equity futures also fell, with investors starting Monday in a cautious mood as they digested the prospects for increased spending under President-elect Joe Biden. Expectations for more aid have helped fuel a rally in risk assets.

After posting its biggest annual gain in a decade, bullion has endured a turbulent start to 2021. Initial advances were overturned by a surge in Treasury yields, which damped the appeal of the non-interest bearing asset. Expectations for more borrowing under the Biden administration have driven rates higher, though that move may have become overstretched, according to UBS Group AG’s Giovanni Staunovo.

Gold “fell a bit too much in my view last week,” said Staunovo, who expects a rebound. “I would expect real rates to fall again in the short term and the U.S. dollar to again weaken.”

For the moment, the dollar’s recovery from its lowest level in almost three years is putting pressure on gold.

Whether higher spending under the Biden administration proves beneficial for gold will depend on how that translates into inflation. Expectations of higher prices will eventually see bullion rise later in the year, according to Howie Lee, an economist at Oversea-Chinese Banking Corp.

Spot gold was little changed at $1,851.16 an ounce as of 10:19 a.m. in London, after earlier dropping as much as 1.7%. The price sank 3.4% on Friday, the most since Nov. 9. Silver, platinum and palladium fell as the Bloomberg Dollar Spot Index rose 0.5%.

In U.S. politics, the House this week will take up a resolution to impeach President Donald Trump over his actions encouraging the mob that stormed the Capitol, Speaker Nancy Pelosi said. At the same time, the president plans a defiant final week in office, according to people familiar with the matter.