Gold News

Gold Price 'Not Doing So Bad' in Face of Surging Rates, Yields and Dollar

GOLD PRICES struggled just 0.8% above last week's new 2-year low in London trade Tuesday, holding below $1670 per ounce ahead of tomorrow's monetary policy decision from the US Federal Reserve as Western stock markets and bond prices fell again on fears of another steep 'anti-inflation' hike to interest rates.
Gold priced in Euros again held firmer, trading near last week's finish at €1671 per ounce as the 19-nation single currency fell through parity to the Dollar for the 6th session running as the Dollar rose back towards early September's 2-decade high on its trade-weighted index against the rest of the world's monies.
But the UK gold price in Pounds per ounce fell, dropping through £1460 for the 2nd time in a week as the Government of new Prime Minister Liz Truss – a former Remainer turned Brexiteer since the 2016 referendum on quitting the European Union – returned from the late Queen's funeral Bank Holiday to find itself invited to join a "European Political Community" of nations, apparently championed by France's President Emmanuel Macron.
"In the round," says the mining industry's World Gold Council CEO David Tait, pointing to 2022's steep rise in bond yields, interest rates and the US Dollar, "you could argue that gold is not doing particularly badly compared to where it could be.
"I think gold is demonstrating resilience [as it] does better than the broader market," agrees Peter Marrone, chairman of Canada-based Yamana Gold (TSE: YRI) – now being bought by Gold Fields (JSE: ZAC) to create the world's 4th largest gold mining group – and also speaking at the annual Denver Gold Conference this week.
Chart of US Dollar gold price, last 5 years. Source: BullionVault
Betting on the Fed hiking by one whole percentage point – the first such move in nearly 4 decades – today held below 1-in-5 on the CME derivative exchange's FedWatch tool having leapt from zero to 1-in-3 on last Tuesday's US inflation shock.
But 2-year interest rates in the Treasury bond market continued to rise, nearing 4.0% per annum and now the highest since October 2007, back when the Fed began slashing its overnight interest rate as the US subprime housing crash and global credit crunch collided.
Longer-term bond prices also fell again, driving the annual yield offered by 10-year US Treasury debt up to 3.54%, topping mid-June's peak at the highest since April 2011.
So-called "real rates" as tracked by the yield on 10-year Treasury Inflation Protected Securities meantime rose to match the peak of November 2018 at 1.17% per annum, just shy of its highest since spring 2011.
"Higher Treasury yields and a stronger Dollar on the back of expectations for more aggressive Fed's policies have been headwinds for gold prices," Reuters quotes a market strategist today.
"More aggressive projections from policymakers compared to current market expectations could reveal a higher-for-longer stance for rates, which may not be well-received by gold prices." 
With Dollar prices for London gold falling to 2-year lows this month, prices in No.1 consumer market China today held near $40 per ounce above London quotes, offering the largest incentive to new bullion imports since 2016 thanks to supply restrictions outweighing soft demand amid the country's ongoing zero-Covid social lockdowns.
Prices in No.2 consumer India meantime rose to a premium of $3 per ounce above London last week, even accounting for country's punitive 12.5% bullion import duty, as the underlying price drop drew increased household demand ahead of the post-summer wedding and then Diwali festival season.
"Demand would improve sharply if prices stay around this level for a few weeks," says one Kolkata wholesaler.


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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