Gold News

Gold Prices Retreat with Stocks, Commodities as Bond Yields Rise Again Ahead of 'Key' US Fed Decision

GOLD PRICES retreated from new 2-week highs at $1740 in London on Wednesday, dropping $10 per ounce as government bond prices fell around the world, edging long-term interest rates higher ahead of today's monetary policy statement and forecasts from the Federal Reserve.
Commodities also fell, down 0.3% on Bloomberg's index, and global stock markets slipped after failing Tuesday to take out the record-high closing level on the MSCI World Index hit 1 month ago.
"They do want to suggest that [economically] things are better," reckons Bill English, a former Fed official now teaching at the Yale School of Management, looking at today's Fed announcement.
"On the other hand, they don't want to suggest that they're going to change policy [and raise rates or slow QE bond purchases] anytime soon. So it's a tricky communication.”
Erasing this week's earlier gains, gold prices traded back at $1729, a 7.5-year high when reached last April but nearly 17% below summer 2020's new record high.
Ten-year US Treasury yields – a benchmark rate for government as well as many finance and commercial borrowing costs – meantime rose to 1.67%, the highest since January 2020, eve of the global Covid pandemic taking hold.
Yields on inflation-protected TIPS bonds held however at minus 0.67%, suggesting the strongest 10-year US inflation outlook since May 2013 at more than 2.3% per annum.
Inflation since then has in fact averaged 1.9% per annum on the 'core' measure of US consumer prices.
But with US consumer-price inflation slowing in February towards last July's 9-year low of 1.2%, the yield offered to new buyers of Washington's standard 10-year debt has now turned positive in real terms.
Chart of 10-year US Treasury yield minus core CPI inflation vs. gold price. Source: BullionVault
Silver prices meantime went sideways around last weekend's level of $26 per ounce, while fellow industrial-precious metal platinum slipped back below $1200, a 6-year high when breached 5 weeks ago.
Neither gold nor silver's largest ETF product saw any change in size on Tuesday as bullion prices rose.
That marked the first pause in net investor outflows since 2 March for gold ETF giant the SDPR Gold Trust (NYSEArca: GLD), now back to its smallest in 11 months and shrinking on 28 of the last 35 trading sessions.
The iShares Silver Trust (NYSEArca: SLV) has now erased all of the record inflows from the Reddit Ramp at the start of February.
The German government's Council of Economic Experts today cut their GDP outlook for the Eurozone's largest economy to 3.1% growth in 2021, down from the previous 3.7% forecast as social restrictions amid the Covid pandemic continue for longer than expected.
UK government borrowing costs rose to new 13-month highs on 10-year Gilts near 0.85% per annum, but Germany's 10-year Bund continued to offer negative returns to new buyers, rising only to minus 0.30% and holding below February's 13-month peak of minus 0.20%.
With bond yields rising sharply in recent weeks as pundits, analysts and fund managers increasingly predict stronger inflation to come – thanks in part to the $1.9 trillion pro-cyclical stimulus now underway from new US president Joe Biden – today's meeting will be "one of the most critical events for the Fed in some time," reckons a note from US financial giant Bank of America.


Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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