Gold News

Gold Price Drops 1.4% for the Week, Central-Bank Rate Hikes Risk Recession

The GOLD PRICE rallied from 13-week lows of $1910 in London on Friday after new US data said manufacturing activity in the world's largest economy is shrinking for the 7th month of the last 12 as the Federal Reserve vows to keep raising interest rates despite the bond market signalling recession ahead.
But rising only to $1931 per Troy ounce around London's afternoon benchmark auction, that gave the gold price its lowest Friday finish in 15 weeks with a drop of 1.4% from last weekend.
That's the steepest weekly fall since mid-May's resolution to the US debt ceiling argument in Washington, plus falling claims for jobless benefits, saw it drop by 2.9% in Dollar terms.
New jobless claims last week held at the highest in 20 months, official data said Thursday.
"The bond market is ramping up its bet that the US will tip into a recession," claims a headline at Business Insider, noting that the gap between 10-year and 2-year Treasury borrowing costs this week grew towards the widest since the deep and long-lasting recession of 1981-82 at almost 1 whole percentage point.
Such yield curve inversions – where longer-term interest rates drop below near-term rates – have preceded every US economic decline in modern history.
Chart of 10-year minus 2-year US Treasury bond yields, end-week data. Source: St.Louis Fed
While 10-year yields have risen by 0.56 percentage points from this point in 2022, the yield on 2-year Treasurys has jumped by 1.62. 
The Federal Reserve has meantime raised overnight borrowing costs by 4.25 points, the steepest rate-hiking campaign since Paul Volcker's Fed took the cost of borrowing towards 20% in summer 1981 to fight inflation running above 10% per year.
Even with US consumer-price inflation slowing to 4.0% per year on the latest data, "I believe that additional policy rate increases will be necessary to bring inflation down to our [2.0%] target over time," said Fed governor Michelle Bowman on Thursday, echoing comments repeated by current Fed chair Jerome Powell in this week's testimony to lawmaker.
"I'm not going to say [recession is] not a risk, because the Fed is tightening policy," said former Fed chair and now US Treasury Secretary Janet Yellen yesterday.
"[But the] odds of it, if anything, have gone down – because look at the resilience of the labour market, and inflation is coming down."
"[We're not] trying to precipitate a recession," claimed Bank of England governor Andrew Bailey after hiking UK rates to 5.0% on Thursday despite saying that inflation is slowing from 4-decade highs in the world's 5th largest economy.
The gold price in Pounds per ounce today fixed around £1520 at London's afternoon benchmarking auction, up £15 from Thursday's price – the lowest since the end of February – but down 0.5% from last Friday and falling for the 6th week in a row.
"No-one envies [the Bank's policymakers] at the moment [but] they...have to create a recession," said Karen Ward, chief market strategist in London for US financial giant J.P.Morgan Asset Management and an advisor to the UK minister of finance, following this week's stronger-than-expected UK inflation data.
With UK rates at 4.5% in May, the Bank's latest outlook and forecasts predicted that a quarter of a million UK workers will lose their job by 2025, with unemployment rising above 1.5 million after hitting the lowest in 5 decades last year. 
Headline inflation in world No.3 economy Japan – where the central bank is sticking with negative overnight rates and a target for 10-year bond yields of 0% – slowed from 3.5% to 3.2% per year in May, new figures said Friday. But 'core' inflation – excluding food and fuel costs – accelerated to 4.3%, below analyst forecasts but still the sharpest annual increase in the cost of living for more than 3 decades.
Activity in Japan's manufacturing sector is now shrinking, the Jibun Bank PMI survey said, while services sector growth is easing from May's decade record.
Eurozone factory activity is meantime shrinking at the worst pace since the first-wave Covid Crisis of 2020, the HCOB PMI survey says, while services sector growth across the 19-nation currency union has slowed again from this spring's 1-year high.
Euro gold prices today ended London trade at €1775 per ounce, down 0.8% from last Friday with the 3rd successive weekly drop.
Among gold investment products, outflows from giant gold ETF the SPDR Gold Trust (NYSEArca: GLD) meant it ended Thursday 0.5% smaller from last Friday night, on track to reverse what was its first weekly inflow in 4, while cheaper competitor the IAU gold ETF also shrank 0.5% for the week so far.
Silver's giant iShares ETF (NYSEArca: SLV) in contrast expanded by 1.4%, on track for its largest weekly growth since early February.
Silver prices today rallied 30 cents per ounce from last night's fresh 14-week low of $22.12.
With the preliminary S&P Global PMI survey for June of US manufacturers reporting the worst monthly contraction since December, the pace of growth in the services sector is edging back from May's 13-month high.

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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