Gold News

Gold Prices Hit 4-Month Lows with Euro, Defy Falling Bond Yields "Theory" as US GDP Shrinks

GOLD PRICES fell at the start of London trade Thursday, steadying at 4-month lows around $1252 per ounce while bond prices jumped once again – pushing world interest rates lower – as new US data showed the largest single economy shrinking faster than analysts forecast at the start of this year.
 
Briefly spiking to reverse that $5 drop as the US GDP number was released – showing 1.0% contraction annually for Q1 – gold prices have now dropped nearly $40 from last week's finish, 2014's third sharpest weekly loss to date.
 
Silver followed and extended the drop in gold prices, briefly touching the lowest level since July 2013's three-year low on the Comex front-month contract at $18.75 per ounce.
 
European stockmarkets reversed earlier losses after the US GDP data, while major-government bond prices rose to push benchmark yields down to 1-year lows.
 
"You have central banks saying they'll do everything in their power to keep rates low," Bloomberg quotes Cathy Roy at $13 billion bond funds manager Calvert Investments.
 
"This is an environment we're going to be in for a long time."
 
Tumbling US Treasury yields "should theoretically be bullish for gold" says INTL FCStone's daily note, "[but it] seems to be having the opposite effect."
 
Demand for the relatively higher yield offered by US debt over German and UK bonds is pushing the US Dollar higher, notes Finance Yahoo's senior columnist Michael Santoli.
 
Ahead of Eurozone rate cuts or QE-style asset purchases widely expected at next week's European Central Bank meeting, the single currency today joined the Dollar gold price in hitting 4-month lows on the FX market.
 
"The breakdown in gold prices could suggest a reverse in falling TIPS yields," said a note from investment advisory GaveKal Capital earlier this week," looking at inflation-indexed bonds.
 
"In this extraordinary time in financial market history," says former floor trader and private analyst Dan Norcini – also noting on Wednesday the close connection between gold prices and TIPS yield spreads vs. conventional bonds since early 2013 – "the market remains quite unsure about the future of inflation."
 
After accounting for inflation, said a note from Deutsche Bank analysts last week, lower US Treasury yields "[should] introduce a more supportive environment for the gold price." Because lower real yields reduce the opportunity cost of holding gold over cash.
 
Incentives offered to would-be gold borrowers by London bullion bank lenders to compensate them for lost cash interest today rose to the highest level since end-March, and rising sharply from last month's near 1-year lows

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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