ASX gold miners have had a rude awakening on Friday as the gold price sells down overnight.
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The S&P/ASX 200 Index (ASX: XJO) has slipped 0.1% from record all-time highs on Friday.
This follows a weak overnight performance on Wall Street with all three indices, the Nasdaq Composite (NASDAQ: .IXIC), S&P 500 Index (SP: .INX) and Dow Jones Industrial Average Index (DJX: .DJI) down between 0.07% and 1.03%.
Despite the slight pullback, ASX gold miners have taken a worse hit on Friday.
Mid-tier players such as Perseus Mining Ltd (ASX: PRU) and Ramelius Resources Ltd (ASX: RMS) are a little worse off, down 5.61% and 7.18% respectively, but Regis Resources Ltd (ASX: RRL) is faring better, down just 1.91%.
At the more speculative end of town, gold explorers have also taken a hit with popular names such as De Grey Mining Ltd (ASX: DEG) slumping 7.32% at the time of writing.
Higher treasury yields smacks gold prices
US bond yields ticked upwards on Thursday night in response to better than expected labour market data. The United States reported a surge in private-sector employment in May, while initial jobless claim figures came in within expectations.
Benchmark US 10-year treasury yields rose about 4 basis points to 1.626%. 10-year treasury yields have been range bound between 1.5% to 1.7% since March this year. This follows its meteoric rise from lows of 0.50% in August last year to a peak of 1.75% in late March.
Coinciding with the uptick in treasury yields and positive labour market data, gold prices slumped about 2% overnight from US$1,900 to US$1,870.
Why do treasury yields matter?
There is an opportunity cost when it comes to holding gold. The yellow metal does not bear any yield, so a capital flow from gold to bonds can be expected when yields become sufficiently high.
For most of last year, the opposite was happening as 10-year yields plunged from 1.95% pre-COVID to lows of 0.50% by August 2020. In conjunction with the fall in yields, gold prices surged from around US$1,650 to a peak of over US$2,060 on 6 August 2020.
Gold could be at its crossroads, with factors such as a weak US dollar and high inflation propping up prices, while a potential breakout of yields could send prices further south.