Gold News

Gold Price Falls as Yield Curve's 'Bear Steepener' Whacks Stocks Again

The GOLD PRICE fell to its lowest London afternoon benchmark in almost 2 weeks on Tuesday, dropping towards $1900 per Troy ounce as the US Dollar jumped further on the currency market while the 'bear steepener' in the US yield curve continued to whack the stock market.
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New York's S&P500 index dropped 0.9% at the opening, extending today's fresh fall in global equities after another fall in government bond prices pushed longer-term US borrowing costs up to fresh 16-year highs.
After erasing all of last week's 2.2% gains on Monday, silver meantime dipped through $23 per ounce before rallying slightly, while gold edged back up to $1907. 
With all Treasury bond yields rising but longer-term rates outpacing the move in shorter-term yields, the so-called 'bear steepener' has now seen 2-year rates rise 0.04 percentage points from this time last month while 10-year yields have jumped by 0.28.
Over the last 45 years, 10-year US Treasury yields have typically offered 0.85 percentage points more in annual yield than 2-year bonds, rewarding longer-term lenders.
That figure read minus 0.54 points at Monday night's close, extending a 14-month run of so-called 'inverted yield curve' recession warnings but half as negative as mid-July's 4-decade low and the least inverted since mid-May.
So far this year, and also across the last 6 months, US Treasury bond yields have made pretty much the same percentage-point rise right across the curve, adding 0.7 since end-December and 1.0 since end-March to each of 2-year, 3-year, 5-year, 7-year, 10-year, 20-year and 30-year rates.
But in this calendar quarter, the price of shorter-dated bonds has fallen much less than long-dated debt, pushing up 2-year yields by only 0.2 percentage points while 20-year and 30-year yields have risen 4 times as much.
Chart of US Treasury yield curve, last 4 quarter-ends. Source: BullionVault
"The yield curve is exhibiting a 'bear steepening'," said analysis earlier this month from the mining industry's World Gold Council, "something often seen during a reflationary or early business cycle period.
"While gold tends to underperform risk assets [such as shares and corporate bonds] during these periods, it is not common to see bear steepening this late in the business cycle and recent moves in yields may be masking other factors at play, such as higher risk premiums" for holding longer-term US debt amid question marks over Washington's credit rating.
"US economic data suggests also that a slowdown is still likely, which, alongside a potential change in the shape of the yield curve, could signal an environment where gold has historically performed well."
Falling again on Tuesday, the US stock market ended last night 2.5% lower for the third quarter so far, trimming its year-to-date gains to 13.0%.
Gold priced in the Dollar had meantime risen 0.7% from the end of June and 6.2% from the start of 2023.
The Dollar itself today rose to new 2023 highs on its trade-weighted index against the rest of the world's major currencies, helping stem the drop in Euro gold prices at a 2-week low just beneath €1800 per ounce.
A record high when first reached on Russia's invasion of Ukraine in early 2022, that level represent a 75% gain from 5 years ago.
"More and more customers are coming back to sell their precious metals to us," says one German coin and small-bar retailer to GoldReporter, confirming that the 2023 plunge in German gold investing has continued and giving that outlet "a supply surplus of 10-20%."
"Demand is still low, both in silver and gold," says another retailer in Germany also seeing what he calls "either profit-taking due to the high prices or people actually need money to survive the economic dip."
The UK gold price in Pounds per ounce also fell less than the Dollar price, dropping only to 1-week lows at £1564.
Shanghai's bullion prices had earlier fixed yet again above the equivalent of $2000 gold in China, showing a premium to London quotes of more than $100 as the Yuan price came within ¥0.2 per gram of mid-September's run to new all-time highs near ¥475.

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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