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Gold Holds Steady at 3-Week Lows despite US Bond Yields Rising, BoE Raises Rates to 15-Year High

GOLD PRICES remained steady after hitting a 3-week low with hot US job data and the US Treasury boosting the size of its quarterly bond sales as the US credit rating was downgraded, while the Bank of England raised interest rate to a fresh 15-year high, writes Atsuko Whitehouse at BullionVault.
The Bank of England opted for a 25-basis point hike to interest rates which took the main rate to 5.25%, the fourteenth increase in a row but slowing the pace of increases from June's 50-basis point rise.
Gold priced in Pounds per ounce rose 0.5% to £1530, while gold prices in Euro edged higher by 0.1% to €1770.
“It (CPI inflation) is expected to fall significantly further, to around 5% by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation,” said the minutes of the Bank’s meeting, adding that it will meet its 2% target by early 2025.
Headline consumer price inflation in the UK slid to 7.9% in June from 8.7% in May, while data from the British Retail Consortium on Tuesday showed annual shop price inflation cooling to 7.6% in July from 8.4% in June for the first time in two years in month-on-month terms.
Gold prices in the US dollar meanwhile held near 3-week lows at $1936 per ounce on Thursday morning as higher yields and a stronger US dollar weighed on the yellow metal. US private payrolls data on Wednesday and the US Treasury boosted the size of its quarterly sale of longer-term debt for the first time in more than 2½ years as the US credit rating was downgraded on Tuesday.
Public debt of the United States by month Source: Statista, US Department of the Treasury
Government debt in the US increased to $32.6 trillion as of today, according to Fiscal Data site created by the Department of Treasury and the Bureau of the Fiscal Service.
The size of debt jumped in June 2023 after lawmakers voted to suspend the ceiling of $31.4 trillion until January 2025.
The Treasury said on Wednesday it would sell $103 billion of longer-term securities at its so-called quarterly refunding auctions next week.
“With larger auctions confirmed for the coming quarter, the sell-off has extended,” BMO Capital Markets strategist Benjamin Jeffery said in a note
Ten-year US Treasury yields – a benchmark rate for government as well as many finance and commercial borrowing – jumped 10 basis points, as prices of Treasuries dropped in wake of the refunding release.
The benchmark yields continued to rise on Thursday to 4.15%, the highest since November 2022, which pushed the Dollar index – a measure of the US currency's value versus its major peers – to a 4-week peak.
“The question from here is if investors will be willing to buy the dip ahead of payrolls” data released on Friday, or if the sell-off has room to extend” Jeffery added amid debate on the appropriate discount for longer-term debt.
“Overall, the US has a debt problem, but that unfortunately gets lost in the politic; luckily markets have the ability to look through,” tweeted Nicky Shiels, head of metals strategy at Swiss refining and finance group MKS Pamp, comparing market reactions of the previous US debt downgrade in 2011, when the US yields fell, while gold spiked over $400 in 2 weeks.
Fitch, a top rating agency, cut the US debt rating from triple A to double A plus late on Tuesday.  It was only the second time in history that a leading credit agency downgraded US debt.  The first was in 2011, when Standard & Poor’s cut the US’s triple-A rating after a nerve-racking fight between the Republican and the Obama administration over the federal budget.
“The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades,” Fitch said.
Richard Francis, a senior director at Fitch Ratings, told Reuters on Wednesday that Fitch downgraded the US credit rating due to fiscal concerns, a deterioration in US governance, as well as political polarization reflected partly by the January 6 insurrection.
European stocks hit a three-week low on Thursday, as the pan-European Stoxx 600 index fell 0.9%, its third consecutive day of losses.  
US stock futures signalled further weakness after the worst session in three months for the S&P 500, slipping 1.4% last session, while the Nasdaq 100 slid 2.2%.  
Ahead of the key US job data published by the US Bureau of Labor Statistics tomorrow, US private payroll data, by Automatic Data Processing Inc. (ADP) revealed on Wednesday that the number of employed people in the US rose by 324,000 in July, higher than the 189,000 expected increase but lower than the revised figure of 455,000 for June. 
“This raised some doubt as to whether the Fed will pause at its next FOMC meeting,” said Daniel Hynes, Senior Commodity Strategist at ANZ.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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