Gold News

Gold Sub-$1800 Amid US Debt Deluge, Euro 'Normalization' Jitters, Record UK Energy Inflation Costs

GOLD PRICES steadied around 2-week lows in London trade Wednesday, holding $5 below $1800 per ounce for Dollar investors as world stock markets slipped, energy prices jumped, and this week's deluge of new US debt continued to hit the bond market.
 
With 10-year US Treasury bonds offering 4% less in annual yield than the latest reading of US consumer-price inflation, crude oil today rose over 1%, while uranium prices hit 6-year records and natural gas in Europe's wholesale market set yet more new all-time highs.
 
"Again, wind [power] is generating very, very little [energy]," says Bloomberg correspondent Javier Blas of the UK's light late-summer breeze.
 
"Coal is fired-up...the UK wholesale electricity price [is now] about 500% higher than the 2010-2021 average. And the winter heating season has not yet started."
 
UK wholesale electricity price, £ per KWh. Source: Bloomberg
 
With inflation in the Eurozone at multi-decade highs, the European Central Bank " may be able to normalize monetary policy sooner than most financial market experts expect," according to Austrian 'hawk' Robert Holzmann ahead of tomorrow's 19-nation September announcement.
 
The EuroStoxx 600 index today fell near 1-month lows thanks to "Pre-ECB jitters", according to a headline at Reuters.
 
Gold priced in the Euro struggled to regain €1520 per ounce after falling to a 3-week low.
 
Among corporate US debt meanwhile, "The engine of supply is running on all cylinders," says one banker – apparently urging borrowers "now is the time".
 
Yesterday saw a record 21 companies tap the bond market for new money, borrowing a total of $35 billion.
 
September will see a record $47bn of new 'junk bonds' hit the market, reckons Bank of America, offering higher yields to compensate for their higher default risk.
 
US junk bonds currently offer 4.00% in annual yield, a record low on the ICE BofA High Yield Index, with the extra reward over AAA-rated bond yields very near end-June's 2.09 percentage points – the lowest spread since Spring 2007, eve of the global financial crisis.
 
Adjusted for CPI inflation, triple-A rated investment-grade bonds currently offer the most negative real yield to lenders since 1980.
 
Chart of US triple-A rated bond yields adjusted by CPI inflation, vs. gold priced in Dollars. Source: St.Louis Fed
 
Tuesday's steep plunge in gold prices saw no change in size for either the giant GLD or cheaper IAU gold-backed ETFs.
 
Trading volumes in Comex gold futures in contrast jumped by more than 1/3rd from before the long Labor Day weekend, reaching its heaviest level since the US Fed's "no change" July policy announcement.
 
Asian stock markets earlier edged lower for a 2nd day running, but Tokyo rose after new data from Japan, the world's 3rd largest single national economy, beat expectations for Q2 growth.
 
While Japan's GDP expanded by 1.9% annualized however, that was aided by a much-sharper than expected drop in prices, with deflation reaching 1.1% per year.
 
The 19-nation Eurozone's GDP also expanded faster than expected in Q2, rallying 14.3% from last spring's Covid Crash.
 
But July then saw France's exports fall month-on-month, as did retail sales in Italy, and economic sentiment across the monetary union is now slumping on the ZEW survey, falling in September to its worst since April 2020.
 
UK house prices meantime continue to rise near the fastest pace since the eve of the financial crisis, data from the Halifax mortgage lender said Wednesday, adding 0.7% last month from July as "demand for more space amid greater home working" offset the gradual expiry of home-buyer tax breaks.
 
Offered amid the Covid pandemic, the cut to Stamp Duty has so far cost the Exchequer £4.4 billion (US$6bn) in lost revenue according to one estimate. 
 
Parliament will today discuss the £11.4bn-per-year tax hike propose by Boris Johnson's government – a " very significant tax rise, with little precedent outside of a Budget" taking an additional 1.25% from working incomes as well as hitting investment dividends – to fund 'back-log' NHS health treatment delayed by the pandemic, plus a new plan to part-fund old-age care in place of pensioners having to sell their home.
 
FTSE100 companies will pay £76.9bn in dividends this year, up nearly 25% from 2020 according to stockbrokers A.J.Bell.
 
E-commerce giant Amazon (Nasdaq: AMZN), whose UK sales grew by one-half amid 2020's lockdowns to £20.6bn, said Wednesday that it paid corporate tax of £492m.
 
Equal to 2.3% of last year's UK revenues, that figure includes the 2 percentage points paid under the UK's new Digital Service Tax according to the BBC.
 
The UK gold price in Pounds per ounce today held above £1300 for the 10th session running.
 
Down 16.9% from August 2020's all-time peak, £1300 was a new record high when first reached as the Covid pandemic took hold in February last year.

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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

Market Fundamentals