Precious Metals Gain as US Yield Curve Steepens, Japan Bond Investing Sinks
Wednesday, 5/21/2025 16:13
PRECIOUS METALS held onto yesterday's steep gains in London trade Wednesday, with gold prices trading at 1-week highs above $3300 per Troy ounce while longer-term bond prices fell − and the US yield curve steepened again − amid rising inflation and growing concerns over the size of Western governments' debts.
Silver tested its highest Dollar price of the past 3 weeks at $33.20 per Troy ounce, while fellow industrial precious metals platinum and palladium rose further to new 12-month and 6-month highs respectively following news of China seeing its heaviest platinum imports in a year.
"A narrative shift could take place from positive tariff news to negative budget and fiscal issues," says an analyst at US financial giant Citi following last week's
downgrade of US Treasury debt from 'risk-free' triple-A by the Moody's ratings agency.
With President Trump's tax-slashing proposals set to raise the US debt ceiling by $4 trillion, "That could see another round of 'sell the US', meaning higher back-end yields, lower risk assets, and lower US Dollar."
The yield demanded by bond market investors to buy 10-year and other longer-term 'back-end' US Treasury debt has now risen above the yield on both 3-month bills and 2-year bonds, part of a "bear steepening" in which
the yield curve has steepened amid a drop in both long and short-term debt prices.
Each of the last 4 recessions in the world's largest economy have been immediately preceded by both the 10-over-2 and 10-over-3-month yield curves steepening sharply, from inverted to positive.
"The clearest way in which [debt and deficit] uncertainties have manifested themselves is through a steeper US Treasury yield curve," says a fixed income manager at J.P.Morgan Asset Management.
Washington's 10-year borrowing costs today tested their highest in three months as Treasury prices fell for a 2nd session running.
Borrowing costs for the government of world No.4 economy Japan meantime jumped again today, hitting fresh all-time highs on 30-year Japanese government bonds above 3.18% per annum after Tuesday's auction of new 20-year JGBs found the weakest demand since 2012.
UK Gilt prices also fell again, sending London's benchmark yields up to a 6-week high near 4.73% − half-a-per-cent above this time last year despite the Bank of England cutting its overnight rate by one whole point starting last August − after an auction of new bonds maturing in 2031 pulled the weakest bid-to-cover ratio for a medium-dated Gilt since December 2023.
Japan's Prime Minister Shigeru Ishiba today staked his job on a pledge to cut rice prices after the daily staple doubled in 12 months.
New UK data today said that inflation in the world's 6th largest economy leapt by almost one percentage point in April to 3.5% per year, the worst pace for consumers since New Year 2024.
Gold priced in both the UK Pound and the Japanese Yen, as well as in the Euro, edged back Wednesday as New York's stock market opened the day lower.
Gold cut £10 from 1-week highs above £2472 per Troy ounce, slipped 0.5% from ¥15,350 per gram, and dropped almost €20 from €2933.
No.2 economy China's central government bond prices slipped, edging Beijing's 10-year borrowing cost up to the highest since start-April − eve of
US President Trump's 'Liberation Day' trade tariffs − at 1.67%.
Gold bullion on the Shanghai Gold Exchange − entry point into the precious metal's No.1 mining, importing, consumer and central-bank buying nation − today jumped 3.1% to a 1-week high of ¥775 per gram.
That was the steepest jump since the record price set at ¥830 per gram on 22 April, the day that global spot bullion quotes briefly touched $3500.
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