Gold News

Gold Holds Tightest Trading Range in 5 Years as Real Rates Hit 2009 Highs

GOLD TRADING in London saw the price cut its overnight rebound on Friday, making a week-on-week drop of barely 0.1% and extending the bullion market's weakest volatility since 2018 as global stock markets suffered their steepest weekly drop in 6 months and the sell-off in Western government bonds kept longer-term interest rates at multi-year highs.
The yield on conventional US Treasury bonds today edged back from Thursday's fresh 16-year highs, while the yield on inflation-protected 10-year debt ticked 2 basis points lower from yesterday's close of 2.11%, the highest since March 2009, bottom of the Lehman Brothers' crash in US equities.
Typically showing a strong, negative correlation against 10-year TIPS yields – and moving in the opposite direction to those 'real interest rates' 2/3rds of the time on a month-to-month basis over the past 2 decades – gold priced in the Dollar was trading at $900 per ounce when the bond market's inflation-adjusted borrowing cost was last this high.
Ten-year TIPS yields yesterday jumped by 11 basis points, the sharpest increase since gold dropped $20 on strong US data following the Federal Reserve's July interest-rate rise.
Chart of London gold price in Dollars (inverted) vs. 10-year US inflation-protected Treasury bond yield. Source: BullionVault
"Yields surge amid potential government shutdown," says a headline at Markets Insider, with Treasury bond prices sinking after the House Freedom Caucus of Republican politicians blocked the passage of a defense funding bill, putting their party's debt-ceiling deal from May with Joe Biden's Democrat White House in jeopardy.
"US stocks drop most in 6 months as Treasury yields surge," says Bloomberg of yesterday's 1.6% fall in the S&P500 index.
But after slipping just 10 cents last week, London gold priced in the Dollar today heading into Friday afternoon's benchmarking auction just $1.50 per Troy ounce below its level 7 days ago, extending the precious metal's run of low volatility at $1926.
Since this point in May, gold's highest weekly finish on the LBMA Gold Price has now exceeded the lowest by just 3.7%. That's the smallest such 4-month trading range since spring 2018, just before the precious metal began what has now been a 5-year uptrend.
Silver bullion has meantime swung 10.8% between its lowest and highest Friday fix in London. That represents the more industrially-useful precious metal's smallest such 4-month trading range since New Year 2020, eve of silver's dramatic Covid Crash and then rebound.
"It's been a week of unexplained price action in many asset classes," says a trading note from Swiss refining and finance group MKS Pamp, "[but] the divergence between silver and its perplexing.
"With gold's $30 washout [on Thursday], platinum and silver naturally came under pressure, falling below $920 and $23/oz respectively. White metals usually tend to oversell in such risk-off environments, but silver [made an] aggressive comeback, almost a straight 60-cent rally.
"Trying to decipher what happened is tough (and futile)," MKS says, adding that "Silver doesn't have the narrative in this macro environment to upstage gold. So outsized/unexplained rallies will likely be faded."
Giant silver-backed ETF trust fund the SLV expanded again on Thursday, with investor demand growing the number of shares in issue by 1.8% for the week so far, the largest inflow since end-January.
Giant gold ETF the GLD – also listed and traded on New York's stock market – meantime headed for its 3rd weekly outflow in a row, down 0.2% but expanding very slightly yesterday from the gold exchange-traded No.1's smallest size since September 2019.
Gold prices in Shanghai had earlier finished the week just below ¥472 per gram, a new week-end record-high price for gold in China – the precious metal's largest consumer and central-bank buying nation.
Gold priced in the Yen meantime whipped back up to ¥9,180 per gram – a new record high when first reached a week ago – as the Japanese currency fell hard on the FX market following the central bank in Tokyo's decision to continue with its ultra-easy monetary policy despite inflation reaching the highest in 3 decades.
The UK gold price in British Pounds dropped £5 on Friday afternoon from this morning's fresh 15-week high of £1574 per ounce, hit after preliminary services-sector data for September showed the worst slowdown in activity since the Covid lockdowns of New Year 2021.
Euro gold rose €3 for the week at €1807 per ounce as today's PMI activity surveys also showed continued recession in the 20-nation currency union's services and manufacturing sectors.

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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