By Yasin Ebrahim
Investing.com — Gold plunged more than 5% Tuesday as demand for safe-haven fell following positive vaccine news and ongoing hopes for another road of fiscal stimulus, with analysts warning the correction could continue for a while.
At 5:00 PM ET (2100 GMT), gold was down $ 108, or 5.35%, to $ 1,921.65, its biggest pullback in seven years, according to Bloomberg.
“It would not surprise us if the correction were to continue for a while, for the scale of the upswing over the past four weeks has been excessive. This was made clear by the extremely high RSI and the pronounced deviation from the 100-day moving average,” Commerzbank (DE:) (DE:CBKG) said. “Sentiment towards gold became positive in the extreme, with only a minority of participants sounding a note of caution.”
The move lower in gold comes in the wake of the falling safe-haven as news about a Russia-made Covid-19 vaccine lifted investor bets that drugmakers could ready a cure sooner rather than later.
As well as positive vaccine news, fiscal stimulus hopes were renewed after lawmakers suggested they were ready to resume talks on a virus aid deal, while President Trump said he was mulling a capital gains tax cut.
A rise in Treasury yields and move off the lows in the dollar kept gold on the back foot as it struggled to rediscover its form that led to a record high last week, when it pierced through the psychologically important $ 2,000 level.
Gold is sensitive to moves higher in both bond yields and the U.S. dollar – A stronger dollar makes gold more expensive for holders of foreign currency while a rise in U.S. rates lifts the opportunity cost of holding non-yielding assets such as bullion.
Still, the yellow metal is still up about 25% from the lows seen in March, though most of the rally was “almost solely attributable to robust investor demand, with all other demand components playing hardly any role,” Commerzbank added. “It is understandable that investors now appear to be taking profits.”
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