Gold is having a hard time finding a sustained bullish momentum. As a result, the yellow metal is now trading downwards, canceling out all the gains it obtained for the last three days. The main reason for the decline is another jump in Treasury yields, which happened after the US Congress approved a new stimulus package.
Bond yields rallied on Thursday as US President Joe Biden announced his plans to sign the $ 1.9 trillion bailout bill later this week.
This rise in yields severely damaged gold, even if it hit a record high last August.
And because of this, BlackRock believes that gold has become a less effective hedge to stocks and inflation.
Hopes for faster economic growth is also dampening demand for the precious metal, causing prices to fall by more than 9% this year.
"Bond regulators continue to view Biden's massive $ 1.9 trillion stimulus bill with deep fear and concern, both about massive supply and inflationary pressures," said Tai Wong of BMO Capital Markets.
"Selling bonds keep yields high and lowers the price of gold pretty quickly," Wong continued.
However, according to Commerzbank AG analyst Carsten Fritsch, while the introduction of vaccines has reduced investor interest in the traditional haven, Biden's economic package could be a serious tailwind for gold in the long term.
"Inflationary risks are growing, since giving away $ 1,400 to almost every American, as well as replenishing and extending unemployment benefits, is likely to lead to a significant increase in consumption," Fritsch said.
