Gold Gives Back Nearly 30% of Record Rally in Just Seven Months

Gold's record run has come crashing back down to earth, losing nearly 30% of its gains in just seven months. The metal's January sprint looked almost unreal at the time, with VanEck's February market commentary putting the intraday high at $5,595 an ounce on January 29. However, by early July, spot gold was hovering near $4,010 after touching $3,942.99, its lowest level since November.

The first signs of trouble showed up in the funds that made gold easy to own, with investors pulling nearly $18 billion from gold ETFs since the January peak. JPMorgan expected roughly 50 tonnes of global gold ETF outflows this year after previously looking for about 400 tonnes of inflows. This is not a small correction, but rather a full reversal in the marginal buyer.

Bart Melek, TD Securities' global head of commodity strategy, explained that retail demand was likely to see more profit-taking and that speculative enthusiasm had faded. Gold pays no interest, and the old math still bites. Rising Treasury yields and growing bets on Fed rate hikes were keeping gold near a seven-month low, with the 10-year yield pressure raising the opportunity cost of holding bullion.

The Federal Reserve's decision to hold rates steady while long yields rise has made gold's job harder. Markets did not hear reassurance from Chair Kevin Warsh, but rather a central bank trying to sound tough without moving. If Warsh keeps rates steady while long yields continue to rise on inflation fears, gold will suffer because the market is doing some of the tightening for him.