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Gold Price Falls on Higher T-Note Yields

Written by Luke Burgess
Posted January 11, 2021

After an impressive rally that kicked off the new year, gold prices fell dramatically on Friday as Treasury yields rose to a 10-month high.

The price of gold shed more than $60 per ounce on Friday, closing the week at around $1,850 an ounce.

Gold — One Year

The 10-year U.S. Treasury yield surged higher than 1.1% after President-elect Joe Biden reaffirmed further economic stimulus will cost “trillions of dollars.”

“As I’ve said before, the bipartisan COVID relief package passed in December is an important step, but just a down payment,” Biden said in a speech on Friday. “Next week, I will be laying out the groundwork for the next COVID economic relief package that meets this critical moment for our economy and country.

“The price tag will be high,” he added... which is quite an understatement. Key Democrats have already backed spending more than $3 trillion.

Of course, Republicans are beginning to raise concerns about overspending now that Biden is about to take office. Yet under their watch, emergency actions taken by the Federal Reserve have already totaled $7.3 trillion, according to the Committee for a Responsible Federal Budget.

Nevertheless, it's clear Democrats aim to spend trillions more. And in the short term that means lower demand for T-notes, thus higher yields last week.

Along with a surge in T-note yields, a rally in the U.S. Dollar Index also put downward pressure on gold prices. And if that wasn't enough, losses were accelerated by technical selling after prices dipped below its 100-day moving average on Friday.

Friday was not a good day for gold.

To add insult to injury, Bitcoin's recent price movement is working against gold's favor.

Bitcoin surged to over $40,000 last week, prompting many to speculate and perpetuate the idea that the cryptocurrency will one day replace gold.

While Bitcoin could never completely replace gold — being that the physical metal is used for other applications including jewelry and technology — I do think it's possible for Bitcoin to become the safe-haven asset of choice for a group of like-minded people.

At first, Bitcoin appealed to the tech crowd. The IT guy in the office was probably the first person who told most people about Bitcoin.

But I actually see it now also appealing to a liberal crowd.

Yeah, safe-haven politics. Everything else in the country has been heavily politicized. Safe-haven assets can be, too. Bitcoin could easily become standard as the liberals' safe-haven asset — while gold would remain the conservatives' safe haven of choice.

At any rate, Bitcoin's recent price movement has, at the very least, distracted the market's attention away from gold.

Nevertheless, I think all the downward pressure on gold is only short term. It's likely we'll see a small recovery in gold prices early this week following Friday's big sell-off. But Biden is slated to unveil his plan for the third stimulus package on Thursday. That announcement could send T-note yields a bit higher and gold a bit lower again.

So overall, it looks like another mixed week for gold.

Until next time,
Luke Burgess Signature
Luke Burgess

As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.

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