The gold (GC=F) market is seeing “an influx of non-gold specific investors” which increases volatility, says one precious metal expert.
“You have people chasing momentum, and momentum based traders accumulating gold is just going to add to the price fluctuation that we’re seeing in the market,” Chris Taylor, CEO of Great Bear Resources, told Yahoo Finance’s The First Trade.
“When you see those rapid price appreciations, you’re going to see rapid falls at the same time,” he added.
Gold has been on a tear this year amid the uncertainty surrounding COVID-19. It reached all-time high in August, but on Tuesday sank as much as 5.3%, its biggest one-day drop in seven years. Part of the movement had to do with a rise in the U.S. dollar and an increase in U.S. 10-year real yields.
“There was a narrative built around gold over the last couple of months ... where real rates were negative, and of course that’s very bullish for gold,” said Taylor.
“Yesterday was a bit of a culmination of a couple of factors, one was the reversal of real rates,” said Taylor.
Taylor also highlighted Russia’s claim surrounding a COVID-19 vaccine.
“It was somewhat surprising that the market reacted as it did. I think there are dozens and dozens of vaccine trials around the world all of which are yielding positive early results, so it’s more of a matter of when, not if, there is going to be a vaccine,” he said.
Taylor said more quantitative easing by the Federal Reserve to “get the economy out of its current rut” is expected affect the price of gold.
“The narrative that’s built around an additional money supply and inflationary pressure is definitely going to be a factor over the long term and that will be bullish over the long term for gold prices,” said Taylor.
Ines covers the U.S. stock market. Follow her on Twitter at @ines_ferre