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Gold Falls, US Dollar and Yields Ease from Multi-Year Highs, Gold ETFs Continue to see Net Redemptions

GOLD PRICES edged lower in all major currencies except in the Japanese Yen, as the US dollar eased from a 20-year high and the US 2-year Treasury yields paused its rally at a 15-year high, amid gold ETFs seeing its 10th consecutive weekly net liquidation writes Atsuko Whitehouse at BullionVault.

Spot gold in US dollar fell 0.4% to $1730 per ounce Tuesday lunch time, after recovering from one-month lows of $1720 during the previous session. The yellow metal dropped 1.2% last Friday as Federal Reserve Chair Jerome Powell signalled that interest rates would keep rising and remain elevated for longer.
The Dollar index – a measure of the US currency's value versus its major peers – weakened slightly after hitting a 20-year high on Monday.
The US 2-year Treasury yield steadied on Tuesday, its highest since November 2007 just shy of 3.50%.
Meanwhile, the US 10-year Treasury yields – a benchmark rate for government as well as many finance and commercial borrowing cost – also steadied at 3.1%.
“Physically-backed gold ETF flows continue to see net redemptions,” tweeted John Reade, Chief Market Strategist at the World Gold Council (WGC).
Gold ETFs registered net outflows of 6.7 tonnes in the week ending 26 August, according to WGC data. This was the tenth consecutive week of net outflows - the longest streak of weekly outflows since Feb-Apr 2021. Global holdings now total 3,663 tonnes.
ETFs registered net outflows of 6.7t (US$375mn) in the week ending 26 Aug. Source: World Gold Council
Source: World Gold Council
“I was actually happy to see how Chair Powell's Jackson Hole speech was received,” Minneapolis Fed President Neel Kashkari said on Monday, reflecting on the sharp stock losses after Powell spoke.
“People now understand the seriousness of our commitment to getting inflation back down to 2%.” 
European stocks rose on Tuesday, as the Stoxx 600 pared some of the losses made during the last session which hit a one-month low. 
US futures also rallied, signalling a break in the equity slump that began last Friday when the Fed’s Chair Powell stressed the central bank is willing to let the economy suffer to cool price pressures.
According to derivatives exchange the CME's FedWatch Tool, traders in Fed Funds futures today priced in nearly 70% probability of 75 basis points rate rise at the next meeting, scheduled on 20th and 21st September 2022. It however receded from as much as 75% on Monday.
Meanwhile, traders see better than 50% odds for 75 basis points move by the European Central Bank after policymakers made the case for a large move to tame inflation four times above their target at the Fed’s annual symposium in Jackson Hole.
"Both the likelihood and the cost of current high inflation becoming entrenched in expectations are uncomfortably high," European Central Bank Executive Board member Isabel Schnabel said. 
"In this environment, central banks need to act forcefully." 
The European Central Bank’s chief Economist, however, cast doubt on a record 75 basis points rate hike next week, suggesting the European Central Bank should raise interest rates step by step as it would give time to learn more about how the economy is progressing. 
Gold priced in Euros went down to a 4-week low of €1728, as the Euro continued to rise against the US dollar, adding to Monday’s 0.32% rally, its biggest in almost three weeks. 
The Euro was also helped by a retreat in European gas prices after German economy minister Robert Habbeck said the country was filling gas storage facilities faster than expected.
The UK gold price in Pounds per ounce held firm at around £1480, amid British government bonds being on course for their biggest monthly fall since 1994 with yields climbing to multi-year highs, as surging energy prices create a perfect storm of higher inflation, tighter monetary policy and the prospect of greater government borrowing.
Gold prices in JPY, meanwhile, edged higher 0.2% to ¥7707 per gram, as the Japanese Yen continued to slide toward the key psychological 140 per dollar level with traders refocusing on Japan’s interest-rate gap with the rest of the world.   
Bank of Japan Governor Haruhiko Kuroda said, “we have no choice other than continued monetary easing until wages and prices rise in a stable and sustainable manner,” pointing to 2.4% inflation in Japan, which are almost wholly caused by the international commodity price hike, energy and food. 
The yen has tumbled close to 4% this month and traded around the 138.50 level on Tuesday, a 24-year low reached last month.


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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