Gold News

Gold Prices 'Hit by Deep Link' to Real Yields But 'Should Gain' on Inflation

GOLD PRICES struggled to recover from yesterday's sharp drop against the rallying US Dollar in London on Wednesday, halving last week's 2.2% gain as world stock markets fell, bond prices steadied and commodities edged higher.
 
Retreating 2.6% from last Friday's 3-week high at $1361 per ounce, the gold price in Dollar terms has now cut its 2018 gains to date to just 2.2%.
 
Priced in Euros and Sterling gold bullion continues to trade below its New Year opening.
 
Japanese Yen gold prices have slid 2.6% since 1st January.
 
"Inflation has come and it should be good for commodities," reckons US investment bank and London bullion market-maker J.P.Morgan in a new report.
 
"In fact, metals both base and precious exhibit their best performance (both outright and volatility-adjusted) when inflation has reached the Fed's 2.0% target and continues rising."
 
But signs of stronger-than-expected US inflation are widely blamed for driving bond yields higher, and rising interest rates have historically forced gold prices down notes Vivek Dhar, mining and energy analyst at Commonwealth Bank in Australia.
 
After a break in this connection not seen in almost a half-decade on BullionVault's analysis, "Tuesday's price move hints at that relationship being revived," says Dhar, pointing to the stronger link between gold prices and the interest rate offered on longer-term bonds after accounting for inflation.
 
"Gold prices and 10-year US real yields have historically had a tight inverse relationship, which is much stronger than the inverse relationship between the US Dollar and gold prices."
 
Chart of real 10-year US Treasury bond yields vs. Dollar gold prices. Source: St.Louis Fed
 
The resurgent Assad government of Syria – currently conducting a "catastrophic" bombing of rebel-held Eastern Ghouta – meantime accused neighboring Turkey of " a blatant violation of Syria's sovereignty" on Wednesday over Ankara's strikes against separatist Kurds in the Afrin region.
 
Turkish President Recep Tayyip Erdoğan dismissed the matter, saying that the issue of his troops – part of the Nato alliance but actively fighting forces backed by the United States – having to deal with pro-Assad soldiers was " closed for now" after they fired warning shots at an approaching division.
 
Leaked documents from the UK Government in London showed Wednesday that Conservative Prime Minister Theresa May wants a transition period of at least 2 years between March 2019's Brexit deadline and actually leaving the European Union, longer than the EU is currently offering.
 
Pro-Brexit lobbyists the European Research Group – led by Conservative backbencher Jacob Rees-Mogg – meantime demanded "full regulatory autonomy" for the UK immediately on Brexit Day, with the right to start signing so-called "free trade" deals with non-EU states. https://www.thesun.co.uk/news/5628762/cabinet-stuck-in-deadlock-over-whe...
 
UK exports of gold – out of stockpiles held in the global trading center of London – last year rose almost 10% as imports fell 41% by weight from 2016's series record.
 
January 2018 saw Swiss exports of gold bullion to Hong Kong and mainland China rise 70% from the same month last year according to analysts at Germany's Commerzbank, jumping as retailers prepared for the key Chinese New Year gift-giving and holiday shopping.
 
New e-commerce channels are extending the reach and sales of jewelry retailers in the world's No.1 gold consumer market, reports the Nikkei newspaper.

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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