Gold bullion on show at Merrion vaults in Dublin on January 7, 2019
Gold futures headed lower Thursday morning, on pace to register the sharpest weekly slump in eight months, as renewed optimism about a near-term, partial U.S. – China trade agreement stirred a rise in debt yields, dulling the appeal of precious metals.
On Thursday, China and the U.S. agreed to lift some tariffs on one another in stages if the two countries reach a partial trade deal.
“This is what [the two sides] agreed on following careful and constructive negotiations over the past two weeks,” said China Ministry spokesman Gao Feng, during a regularly scheduled news briefing.
December gold GCZ19, -0.49% on Comex declined $8.50, or 0.6%, at $1,484.60 an ounce, wiping out much of its 0.6% gain from Wednesday. December silver SIZ19, -0.36% shed 8 cents, or 0.4%, at $17.510 an ounce.
For the week, gold, down 1.7%, and silver, poised for a 3% weekly drop, are on track for their sharpest such declines since the period ended March 1, according to FactSet data.
A recent rise in yields for government paper poses a threat to bullion as investors tend to gravitate to assets perceived as safe investments that offer higher yields, and precious metals don’t bear a coupon, analysts say.
The 10-year Treasury note yield TMUBMUSD10Y, +4.12% was at 1.875% on Thursday, compared with 1.727% at the start of November. Meanwhile, the U.S. dollar has been fairly muted at 97.95, as gauged by the ICE U.S. Dollar Index, a measure of the dollar against a half-dozen currencies.
“What ultimately matters more for gold is the hard and exact inverse correlation to US yields and the US dollar,” wrote Stephen Innes, market strategist of the Asia Pacific region at AxiTrader, in a daily research note.
“With US 10-year nominal yields loitering around 1.85 % and the dollar looking more attractive gold loses some of its shine,” he wrote.