Gold News

Gold Price Hits Pre-SVB Low as Fed Vows to Halve Inflation with High Rates

GOLD PRICES failed to hold a rebound back above $1900 per Troy ounce in late London trade Thursday, fixing around $5 lower at the afternoon benchmark auction as global stock markets fell once again with bond prices following yesterday's release of 'hawkish' notes from the US Federal Reserve's latest interest-rate rise meeting.
With US inflation on the core PCE measure running at 4.1% on the latest data – a 3-decade high when reached in late-2021, but down from February 2022's four-decade peak above 5.4% – "Participants continued to judge that it was critical that the stance of monetary policy be sufficiently restrictive to return inflation to the Committee's 2% objective over time," the Fed minutes said.
Well over 1-in-3 bets on Fed rates now see the US central bank raising rates again before New Year 2024 – up from barely 1-in-5 this time last month according to the CME derivatives exchange's FedWatch tool – and the consensus betting doesn't now see any cut to Fed rates before May.
Gold priced in the rising US Dollar fell to touch $1890 in spot-market trade overnight, just below the low seen at the end of June and the cheapest since 10 March, just before the mini-crisis in US regional banking which took down Silicon Valley Bank among others.
Chart of spot gold bullion price in US Dollars. Source: BullionVault
Despite US policymakers agreeing in July to raise Fed interest rates again, there are "Growing signs of dissent in the ranks," says bullion-market specialist Rhona O'Connell in her review of the meeting minutes for clients of brokerage StoneX.
In particular, "Commercial real estate weakness came up more than once, notably with reference to risk to smaller/medium sized banks," she adds, wondering if this is "Reminiscent of 2007?" when the Fed delayed cutting rates for fear of allowing inflation to take hold despite the then-snowballing subprime property crash.
Over in world No.2 economy China – where the central bank this week surprised traders and analysts with a steep cut to borrowing costs – Shanghai gold prices continued to trade at multi-month highs relative to London quotes today, but wider markets face "contagion risks", says French bank Natixis' senior China economist Gary Ng, from falling house prices, "sluggish home sales" and the "liquidity crisis" at former giant property developer Country Garden, now owing the equivalent of $200 billion in unpaid bills while contracted to finish building almost 1 million new apartments across the world's most populous nation.
Wednesday's strong US house-building and industrial production figures were today followed by data showing continuing claims for jobless benefits rose faster than analysts forecast at the beginning of August, but initial claims fell as expected last week.
"Elevated inflation [is] continuing to harm businesses and households," said the minutes of end-July's Fed rate rise meeting, "low-income families in particular.
"[But] job gains [have] been robust...the unemployment rate [has] remained low...the economy ha[s] been showing considerable momentum [and] the US banking system [is] sound and resilient. Against this background, the Committee remain[s] highly attentive to inflation risks."
So-called real interest rates rose again on Treasury Inflation-Protected Securities on Thursday, putting the benchmark TIPS yield at a fresh 14-year high of 1.96% per annum.
Giant gold-backed ETF the GLD didn't change in size Wednesday despite the Fed minutes and gold price drop, holding at the smallest since January 2020, while the smaller IAU product from iShares remained at its smallest since March this year.
Silver meantime spiked briefly to $23 per Troy ounce Thursday but fell back 30 cents to trade unchanged for the week so far, up from Tuesday's 2-month low of $22.23 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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