Gold News

Gold Price Erases 2023 Gains as Rate-Rise Fears Push US Recession Signal to 4-Decade Record

The PRICE of GOLD dropped to new 6-week lows on Wednesday, erasing almost the last of 2023's previous 7.2% gains against the Dollar as the US currency rose and New York's stock markets retreated with bond prices in the face of rising interest-rate expectations across developed-world economies.
Dipping as low as $1832 per ounce, the US gold price fell 2.5% for the week so far as the Dollar Index rose to 103.64, the top of its last 7 weeks' trading range.
New UK data meantime echoed the slower inflation reported by the US and Eurozone for January, helping 10-year Gilt yields slip 0.06 percentage points from yesterday's 5-week highs of 3.55% per annum.
But German and US borrowing costs rose further, nearing their highest in 2023 to date at 2.45% and 3.77% respectively on 10-year Bunds and Treasuries as betting that the US Federal Reserve will end 2023 with its key overnight interest rate higher than today rose to 9-in-10, up from just 1-in-5 this time a month ago.
With short-term rates rising faster, the gap between 2-year and 10-year US yields widened to a new 4-decade record near 0.9 percentage points, the widest 'yield curve inversion' since 1981.
That signals "flagging confidence in the economy’s ability to withstand additional Federal Reserve interest-rate hikes," according to Bloomberg.
Each of the last 6 recessions in the US followed a yield inversion of 10-year vs. 2-year rates, as well as the 10-year yield dropping below 3-month rates.
That spread last month hit its deepest inversion since April 1980 at 1.17 percentage points, easing but rising again Wednesday.
Chart of 10 minus 2-year US Treasury yields and the 10-year minus 3-month spread. Source: St.Louis Fed
Gold priced in Euros fell to €1709 per ounce, less than €10 higher for 2023 to date after reaching 7-month highs in mid-January at €1785.
The UK gold price in Pounds per ounce meantime fell to £1514, less than £10 above its close on New Year's Eve and almost 5% beneath last month's fresh all-time gold high for UK investors and savers.
Besides slower but stronger-than-expected US inflation data, yesterday brought news that the 19-nation Eurozone economy grew by 1.9% per year in the last 3 months of 2022 – its slowest growth since the first quarter of 2021 but towards the upper-end of pre-Covid performance – while average wages in the UK slowed hard to a 5.9% annual rise, badly lagging inflation in the cost of living.
UK inflation slowed to 10.1% per year in January, the Office for National Statistics said today, 1 whole percentage point below October but a 4-decade high when first reached last summer.
2023 will now see economic growth across the 19-nation Eurozone reach 3.5%, the European Commission said Monday, 0.3 percentage points above its previous forecast, while headline inflation will slow from last year's 9.2% pace to 6.4% – some 0.6 points below its prior estimate – "thanks to rapidly declining energy prices."
But rather than helping erode the real value of Eurozone government debt, such continued strong inflation in the cost of living means "spending pressures [will] intensify and more than offset the benefits on the revenue side," said a research paper from the European Central Bank on Monday, "leading to nearly 0.5% of GDP deterioration in the budget balance level in 2024."
As for the UK economy, "the current productivity penalty [from leaving the European Union] is about 1.3% of GDP," said Bank of England policymaker Jonathan Haskell to a finance blog last weekend – equal to "about £29 billion, or roughly £1,000 per household," and rising across the central bank's forecast period "to something like 2.8% of GDP...very close to the 3.2% number we found using [a] totally different...methodology based on goods trade volumes."
"We need better quality public sector spending instead of more quantity," said Germany's finance minister Christian Lindner said Wednesday when asked how the Euro area – which matched China's total GDP in Dollar terms last year at around 2/3rds the size of the US economy – should respond to US President Biden's multi-trillion green-energy and economic stimulus plans in the Inflation Reduction Act.
"It's time to return to sustainable public finances...We need fiscal discipline."
Like gold, the price of silver extended its run of losses on Wednesday, reaching fresh 11-week lows against the Dollar at $21.43 per ounce.

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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