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Gold Bar Prices Fall to $1780 'Because of Real Yields' After 'Inflation-Fighting' Fed

GOLD BARS traded in London's wholesale market fell further in price Friday, erasing the last 3 weeks' gain to touch $1780 per ounce as global stock markets resumed their falls and longer-term interest rates continued to rise in the bond market following the 'hawkish' comments on US monetary policy from Federal Reserve chairman Jerome Powell.
 
With the price of wholesale gold bullion bars now 4.0% below Tuesday's 2-month high, "Gold's reaction might seem extreme but it's been needed," said Suki Cooper, executive director of precious metals research in New York for Asia-focused bullion bank Standard Chartered, on a webinar yesterday for members of industry body the London Bullion Market Association.
 
"Look at real yields."
 
Chart of gold bar prices vs. 10-yr TIPS yields. Source: BullionVault
 
Tracking market expectations for long-term inflation against the return from US Treasury debt, the yield on 10-year TIPS retreated again on Friday as stock markets fell, falling back to minus 0.63% per annum from last week's 19-month high of minus 0.50%.
 
That still puts real rates – against which gold typically shows a strong inverse correlation – sharply above the record lows near minus 1.20% hit in August last year.
 
Gold was then trading at $1810 per ounce. Inflation in US consumer prices was running at 5.2% against more than 7% on December's data.
 
"The combination of an 'inflation-fighting Powell' and the threat AND uncertainty over the number of rates hikes remains a headwind for gold and precious pricing," says analysis from gold-bar refining and bullion finance group MKS Pamp.
 
"For now, the threat – Powell's 'bark' of hikes, [quantitative tightening] etc – is worse than the 'bite' of actual hikes, QT.
 
"Once that threat is removed (with March Fed hike), gold historically (and surprisingly to most) tends to rise marginally during Fed hiking cycles."
 
With the Dollar today rising again following Powell's Wednesday press conference to hit new 2.5-year highs on the currency market, the price of gold bars fell less steeply to less marked lows for non-US investors.
 
400-ounce gold bars priced in Euros today dipped below €1600 per ounce for the 1st time in 7 sessions while the UK gold price in Pounds per ounce erased last week's 1.9% rise to trade around £1330.
 
Over in the stock market, Germany's Dax index meantime lost 2.2% as Berlin's 10-year government bond yields rose back towards zero after breaching that level for the first time since May 2019 last week.
 
London's FTSE All-Share meantime shed 1.3% as rates on 10-year Gilts also approached 3-year highs, rising towards 1.30% per annum.
 
Meantime in China's financial markets, now shut for the week-long Lunar New Year of the Tiger holidays, the price gap between London and Shanghai gold bar prices edged above $6 per ounce today, increasing from an incentive for new imports of $5.15 yesterday.
 
Private gold bar, coin and jewelry buying in China – the world's most populous nation, 2nd largest economy, and No.1 gold consumer – rebounded by more than 36% in 2021 from the prior year's Covid-hit level, the government-mandated China Gold Association said this week, showing a near-12% rise from 2019's total gold demand.
 
"The relatively stable gold price outlook will provide support for consumer demand in 2022," according to Wang Lixin, managing director in China for the WGC.
 
"Fresh signs of contagion are rippling through China's property industry," says data and news-wire Bloomberg, with today's resignation of independent auditors PWC from reviewing the accounts of top 5 Chinese real-estate development group Hopson (HKG: 0754) following a raft of debt defaults and restructuring across the sector.
 

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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