Gold and Silver Sink as Real US Bond Yields Hit Near-Record Highs

GOLD and SILVER PRICES sank in Asian trade Monday, losing 2.5% and 4.2% in Shanghai and putting London bullion at the lowest in 8 weeks as China's stock market also slumped and Western government bond yields hit fresh multi-decade highs as crude oil rose again after the US rejected a proposal from Iran for re-opening the key Strait of Hormuz.

With Shanghai closed last Friday for the Mid-Autumn festival and set to shut again this Thursday to start China's Golden Week autumn holidays, the CSI300 share index lost 2.2% to a 13-month low.

Brent crude topped $108 per barrel on November futures as Iran vowed to "clear the Arabian Sea" of "enemy forces" after US President Trump said Tehran had only offered a new deal over re-opening Hormuz because it is "losing so badly" in the all-out war which Washington and Israel began more than 6 months ago.

US borrowing costs also jumped, peaking just 3 basis points below June 2007's then 5-year high of 5.26% per annum on 10-year Treasury bonds.

So-called real yields on inflation-protected TIPS rose to 2.87% per annum, adding 25 basis points since the eve September's hike to overnight interest rates by US central bank the Federal Reserve and the highest on record outside the chaotic spike during the Lehman Brothers' crisis of October-to-November 2008.

After gold prices defied the jump in real bond yields last month, this latest rise in borrowing costs "suggests the Fed's 25 bp rate hike on 16 September has not quelled concerns over persistent inflation and elevated government borrowing," says weekly comment for German bullion refiners Heraeus from specialist analysts SFA (Oxford).

"The rise in real yields alongside nominal yields is particularly significant for precious metals, indicating that the sell-off in Treasuries has not been driven solely by higher inflation expectations, but also by investors demanding a higher inflation-adjusted return, consistent with the anticipation that monetary policy could remain tighter for longer."

Ten-year TIPS yields have now risen 115 basis points since the eve of today's Middle East war between the US and Iran starting 1st March.

Gold priced in the Dollar has meantime lost 1/5th of its value as the US currency has rebounded on the FX market towards levels last seen before President Trump's "Liberation Day" trade tariffs announcement of April last year.

Betting on the Federal Reserve's next interest rate decision on Monday put a stronger than 2-in-3 chance on the Fed raising again at its October meeting, with the probability of a further rate rise in December hitting 55% according to trader positioning tracked by the CME derivatives exchange's FedWatch tool.

Now down at $4153 per troy ounce, gold settled in global trading and storage hub London has lost 9.1% so far this month in US Dollar terms.

That's a little less than the 9.3% drop made in Dollar equivalent terms by gold in Shanghai. But adjusted by the Dollar's FX value against other major Western currencies, the London price has lost 7.7%.

Having been shut Friday for China's Mid-Autumn Festival, the Shanghai Gold Exchange today saw gold fix at the lowest Yuan price since early August, trading at ¥901.5 per gram.

Shanghai silver fell almost twice as hard, also fixing with the lowest Yuan price in more than 7 weeks beneath ¥14,960 per kilo.

Monday's plunge in Chinese share prices was led by AI chipmaking stocks, as rumours that Beijing may allow Chinese firms to buy equipment from US giant Nvidia following last week's state visit to Washington by President Xi Jinping added to disappointment at the failure to agree a wider trade deal.

Saudi Arabia's Foreign Minister Prince Faisal bin Farhan meantime arrived in Washington today for talks with Trump's Secretary of State Marco Rubio as the world No.1 oil exporter battles Iran-backed Houthi forces across the Strait of Bab El Mandeb.