It was destined to happen.
Those looking for a dip-buying opportunity in gold got it Tuesday, as the yellow metal fell more than 5.5%, in the worst single-session drop in seven years.
After rising virtually unimpeded to record highs, gold fell below $2,000 an ounce in a third straight day of losses, which lined up with three straight days of higher US real yields.
Note that Tuesday’s drop was even steeper than the declines seen in March, when gold was liquidated as the dollar surged and investors exited positions in the precious metal to meet margin calls in other assets.
Amusingly, the drop came just hours after Bloomberg featured commentary from CrossBorder Capital, where folks are busy arguing that gold’s recent rise wasn’t the product of deeply negative real rates, but rather shifts in global liquidity (as if emergency liquidity provision and plunging reals are somehow unrelated phenomena). Prices might hit $3,000, CrossBorder said.
Maybe they will. But not on Tuesday.
Instead, the rally collapsed under its own weight — the drop is good for an eye-popping chart.
Although the fundamental case for bullion obviously remains intact, the nascent uptick in US real yields and signs that investors may be prone to taking profits (see Friday’s $382 million outflow from the most popular gold ETF) suggest the record-shattering rally may have run out of steam for now.
Tuesday’s drop coincided with the biggest single-day rise in US 10-year yields in two months, which was itself helped along by a relatively robust read on PPI stateside.
If the move accelerates or lasts beyond a couple of sessions it could add to the pro-cyclical impetus seen in outperformance from small-caps, energy, and other laggards, which are in the process of trying to close a (wide) gap with mega-cap tech.
On Monday, I cautioned that although gold has plenty of excuses if it wants to keep climbing, the subtle uptick in real yields could serve as “kryptonite” in the near-term. Fast forward 24 hours and bullion was down the most since 2013.