Gold News

Gold Bullion Rallies as Weak ADP Hits Dollar, Bond Yields Rise Again with Crude Oil

GOLD BULLION reversed a near-$10 drop lunchtime Wednesday in London, rising towards yesterday's 3-session highs at $1198 per ounce after much weaker-than-forecast US jobs data.
 
The private-sector ADP Payrolls report – released two days before Washington's official non-farm payrolls estimate for April – said the US added 169,000 new jobs net last month.
 
The smallest net rise since January 2014, that number badly missed analyst forecasts of 200,000.
 
"So far, the break lower does not seem to be materializing," says analyst Edward Meir at INTL FCStone, noting that gold bullion prices have "instead managed to revive and resume [an] orbit closer to the $1200 mark."
 
New York's stock markets fell for the second day running, crude oil hit fresh 2015 highs near $62 per barrel and US Treasury bond prices joined European debt in slipping again, pushing yields higher.
 
Benchmark Italian bond yields rose 0.1 percentage point on the day, and Greek 10-year yields rose back to 10.8%.
 
The Dollar meantime fell Wednesday to new 10-week lows near $1.13 per Euro as Reuters quoted anonymous 'sources' saying Greece – currently asking the European Central Bank to allow its commercial banks to buy more government debt – had made a €200 million bail-out loan repayment to the International Monetary Fund on schedule.
 
Greece is due to repay €750m to the IMF next Tuesday. Its left-wing Syriza-led parliament last night voted to overturn public sector 'reforms' from the previous government, reinstating 13,000 workers including 600 tax-office cleaners who have held a round-the-clock protest for the last 12 months according to the Financial Times.
 
"The ongoing increase in bond yields is preventing any further gold price rise for the moment," reckons Eugen Weinberg's commodity analysis team at Commerzbank in Frankfurt, pointing to the 2-month highs in 10-year US Treasury rates.
 
"Higher interest rates make gold less attractive, as it yields no interest itself," explains the German bank.
 
Comparing gold bullion with crude oil prices last week, "The gold/oil ratio tends to closely track inflation expectations," said a research note from French bank and bullion market maker Societe Generale.
 
Forecasting a drop in the ratio of gold to oil prices to signal a "higher inflation regime", SocGen's FX and commodities teams "see upside to oil into the second half of the year as the market finds a balance [but] are bearish on gold into Fed tightening."
 
Crude oil prices have now risen 25% since the start of April while gold bullion priced in Dollars is unchanged just below $1200 per ounce.
 
Two-year US Treasury bond yields have risen 0.1 percentage point to 0.62%, and 30-year yields have risen nearly half-a-percent to 2.92% – the highest level since early December.

Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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