Gold News

Gold Hits 6-Month Lows as US Bond Yields Jump on Strong Data, Looming Shutdown

PRICES to BUY GOLD extended yesterday's steep plunge on Thursday, trading at 6-month lows against a surging Dollar as strong US data sent longer-term interest rates up to fresh multi-year highs in the bond market ahead of this weekend's increasingly likely government shutdown in Washington.
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Gold bullion for London delivery dropped to $1873 per Troy ounce, down 3.0% for the week so far, while silver traded 5.2% lower from last Friday at $22.50.
While indictment-plagued ex-US president Donald Trump yesterday skipped a TV debate of Republican candidates for the 2024 election to address striking auto workers in Michigan, the Democratic-controlled Senate is holding 'stopgap' votes to try extending the debt ceiling deal brokered in June but which hard-line opponents now refuse to accept.
Crude oil pushed higher again towards $100 per barrel, but global stock markets fell for the 10th session running on the MSCI World Index, while European bond prices also fell, sending borrowing costs higher but still lagging US yields – now offering more than 4.60% per annum on Washington's 10-year debt, the highest since 2007, as the 'bear steepener' continues across the yield curve.
Inflation-protected US Treasury bonds are meantime yielding 2.28%, the strongest such 'real interest rate' since the chaos of the Lehman Brothers' crash in late-2008.
With prices to buy gold typically showing a strong inverse correlation with that post-inflation return on 'risk-free' debt, "The model-implied gold price given current real 10-yr yields is $625/oz!" says a note from strategist Nicky Shiels at Swiss bullion refining and finance group MKS Pamp.
"Sure, gold should retain a premium vs rates, but this large?"
Chart of 10-year TIPS yield vs. gold priced in Dollars. Source: BullionVault
From September last year, the real 10-year interest rate has now risen 0.7 percentage points on its monthly average, the 4th steepest jump since the turn of the millennium according to the Cleveland Fed's historic data series.
Yesterday saw weak Eurozone bank lending data for August – showing the slowest growth in non-financial company borrowing since 2015 – make a stark contrast with strong US durable goods orders blowing past analyst forecasts.
Consumer-price inflation in Germany – where the economy will shrink 0.6% in 2023 according to 5 separate institutions advising Berlin's government – has now sunk to 4.3% per year, preliminary data for September said today.
Initial claims for US jobless benefits continue to run near 5-decade lows.
The cost to buy wholesale gold with Euros today dropped through €1780 per Troy ounce for the 1st time since mid-September, when reports of gold No.1 consumer China re-opening itself to new bullion imports spurred a global price jump.
Shanghai's benchmark gold price today sank 3.5%in Yuan terms, down to ¥450 per gram and the cheapest since the start of July, as China's financial markets shut down for the week-long mid-autumn festival and National Day holidays.
With business activity now curtailed until the end of next week, that snapped Shanghai's run of record incentives to new gold imports from London – heart of the bullion market's trading and storage network – falling to $40 per Troy ounce from this month's average above $75.
The UK gold price in Pounds per ounce also fell to its cheapest in 2 weeks with the Euro price, dropping through £1540.

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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