Gold News

Gold Price Keeps PMI Gains But Bond Yields Rally, Fed to Stick with 'Higher for Longer'

The GOLD PRICE held onto yesterday's steep gains in London trade Thursday lunchtime, edging back $5 per Troy ounce from a fresh 2-week high above $1920 as mixed US economic data followed yesterday's shock weakness in global manufacturing and services-sector activity surveys.
US durable goods orders dropped harder than analysts expected on July's data, but new claims for jobless benefits came in at just 230,000 for last week – a 5-decade low when reached in late 2019.
Global stock markets meanwhile held flat overall as a small drop in Europe offset a rise on Asian bourses following New York's strong finish overnight after microchip brand Nvidia (Nasdaq: NVDA) beat Wall Street's bullish forecasts for quarterly earnings and forecast 170% annual growth in its late-2023 sales.
Western government bond prices steadied from yesterday's steep rebound – driven by poor Euro, UK and US PMI activity surveys for August – edging longer-term borrowing costs higher from Wednesday's sudden 2-week lows.
But whilst still below March's 12-year high for German Bund yields as well as last week's 11-year high for French OATS and 15-year highs for UK Gilts rates, this week's moves leave the 2023 uptrend in borrowing costs intact so far.
Chart of 10-year German Bund yield, last 12 months. Source: Trading Economics
"The global trend of PMI weakness is consistent with a fall in bond yields across the board," says a strategy note from Swiss bullion refiners and finance group MKS Pamp, "as the 'short bond bubble' comes under pressure."
But ahead of tomorrow's Jackson Hole policy speech from US central bank chief Jerome Powell, however, "One set of US PMI data is unlikely to change the Fed's 'higher for longer' narrative" – aimed at cutting inflation back to the 2% target.
Looking 12 months forward, data from the CME derivatives exchange says that a little over 1-in-10 bets on July 2024 now see the Fed holding or raising its overnight target rate across the next year, up from below 1-in-20 at this point last month.
The consensus predicts a rate of 4.85% according to the CME's FedWatch tool, fully half-a-percentage point below the current yield offered by 12-month Treasury bills.
Despite yesterday's big move in gold prices, giant gold-backed ETF the GLD held unchanged in size yet again on Wednesday, ending the day at its smallest since January 2020, eve of the global Covid pandemic.
No.2 gold ETF the IAU in contrast saw its first inflows for 2 weeks, growing 0.2% from its smallest size since May 2020.
"A rise in ETF gold buying," says a note from analysts at Swiss bank and bullion-market clearers UBS, "typically occurs just ahead of a US [interest-rate] easing cycle – the timing of which we anticipate will become clearer by year-end as we get more data and the Fed decisions are behind us.
"Gold has also historically performed well when the USD softens, and we see another round of Dollar weakness over the next 6-12 months."
The Dollar today edged back from yesterday's 2.5-month high against the rest of the world's major currencies, putting the trade-weighted Dollar Index 4.3% lower from this time last year but 3.7% above early July's 15-month low.
That helped the UK gold price in Pounds per ounce to hold above £1510 while the Euro gold price again touched €1770 before edging back €5 per ounce.
Silver meantime extended its gains to reach the highest in 3 weeks, peaking above $24.30 per Troy ounce before edging back 10 cents.
That kept the Gold/Silver Ratio – a simple measure tracking the relative value of the 2 formerly monetary metals – below 80 for a 2nd day running after it fell to 79.0 on Wednesday, the cheapest value for 'safe haven' gold in terms of more industrially-useful silver since 2nd August.

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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