Gold and Silver 'Trading Well' Given Surge in Real Interest Rates
The GOLD PRICE rallied from 7-week lows on Wednesday, trading back above $4500 per troy ounce as crude oil eased back with real yields and long-term interest rates in the bond market even as Iran and the USA threatened new violence in their Middle East war.
Hong Kong's government meantime said it expects to launch gold bullion clearing − settling trades through "unallocated" accounts held on the balance-sheet of participating banks, and backed by metal held in the south-eastern Chinese city − in July.
Crude oil fell to new lows for this week so far beneath $107 per barrel of Brent, but betting in the futures market still said the Federal Reserve's next move will be to raise its key Dollar interest rate in December this year.
On the last day of February, eve of the US-Israeli air0stike attacks on Iran, the consensus bet forecast a rate-cut this June.
"We've seen a massive repricing in rates" since the Iran War began says gold mining fund manager and author of the popular "In Gold We Trust Report" Ronnie Stoeferle, noting the "100 basis points shift in short-rate expectations since Feb 27.
"Oil up 50% lit the fuse on near-term inflation, but...roughly half the move in the 5-year [bond market outlook] came from real rates, not inflation expectations.
"[So] this isn't just an oil scare, it's a genuine tightening of real financial conditions. Against that backdrop, gold, silver & miners are holding up remarkably well."
The so-called real rate of interest − meaning the yield offered above and beyond inflation by US Treasury TIPS bonds − edged back today as oil slipped, retreating from Tuesday's spike to 11-month highs.
With gold prices fixing at London's 3pm auction beneath $4500 for the first time since late-March both 5-year and 10-year US TIPS yields yesterday reached the highest since June last year at 1.66% and 2.18% per annum respectively.
Looking at just the 10-year TIPS yield rate, the price of gold's daily correlation with real rates over the past 3 months has now shown its strongest negative relationship since the 3 months ending February 2025.
"We may have to give them another big hit," US President Trump said overnight of Tehran, giving Tehran a deadline to agree a deal of "maybe Friday, Saturday, Sunday, something, maybe early next week, a limited period of time, because we can't let them have a new nuclear weapon."
"Should aggression against Iran be repeated," replied Iran's Islamic Revolutionary Guard Corps today, "the regional war will this time extend beyond the region. Our crushing blows in places you can scarcely imagine will reduce you to ashes."
"This deadlock will [likely] continue for some time," reckons Will Todman at Washington think tank the Center for Strategic and International Studies, "because both sides seem to believe that the longer this goes on, the greater their leverage will be [as] opponents will be suffering economically."
Silver prices also rose Wednesday, edging up to unchanged for the week so far at $76 per troy ounce after testing 10-session lows almost $3 beneath that as real interest rates surged towards their highest in a year.
Hong Kong's gold clearing system, first announced in March, will follow the London bullion market model according to news reported by Bloomberg today, but it is wholly owned by the Hong Kong Special Administrative Region Government, part of China's avowedly Communist state.
The Hong Kong Precious Metals Central Clearing Company Limited already counts London clearers J.P.Morgan, HSBC, ICBC and UBS among 11 banks represented on the PMCC's board of directors.
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