Gold ETFs Shrink from Record But Demand 'Defies Rising Real Rates'

GOLD ETF share prices fell Wednesday as London bullion hit 1-week lows beneath $4300 per troy ounce, reversing an overnight rally as crude oil regained the $100 mark and long-term borrowing rates for the US and other Western governments rose towards last week's multi-decade highs in the bond market.

While the top 2 exchange-traded trust funds backed by gold have shrunk 0.1% since Friday's close, gold ETFs worldwide last week expanded to need more than 4,250 tonnes of bullion for the first time ever, data from the mining industry's World Gold Council says.

That coincided with the real yield offered by 10-year inflation-protected US Treasury bonds hitting its highest since November 2008, peak of the global financial crisis amid the chaos of Lehman Brothers' collapse.

Expanding last Friday towards the top-end of the past 5 years' range in size, world No.1 gold ETF the SPDR Gold Trust (NYSEArca: GLD) has over the past 13 week-ends shown its strongest positive correlation with the direction of real US bond yields since New Year 2022.

Now reading +0.72, that figure − known as the r-coefficient in statistics − would read +1.00 if the size of the GLD in tonnes exactly moved in lockstep with the 10-year TIPS yield.

Over the past 20 years, it has typically read minus 0.34, with the GLD tending to shrink when real US bond yields rose and vice versa.

This "divergence" from historical norms "highlights an increasingly notable disconnect between gold demand and what historically has been a strong inverse relationship with real yields," says spread-betting platform Saxo Bank's Ole Hansen.

Gold prices "can rise with slowly rising real rates − the path we appear to be on," reckon $900bn asset managers Alliance Bernstein, because "central banks are not finished diversifying reserves away from the US Dollar and other G7 currencies into gold."

"Gold has gone from a pure play on real rates to a pure play on liquidity," says macro analysis director Jurrien Timmer at $7 trillion asset managers Fidelity Investments, putting gold's 'fair value' price at $5000 based on a model tracking the size of the US money supply.

"The market senses a slippery slope towards fiscal dominance [by the hugely-indebted US Treasury] and a possible loss in Fed independence."

But with US unemployment in August "extending the longest streak in recorded history at or below 4.5%," said 2026 non-voting Fed policymaker Thomas Barkin in a speech yesterday, "it's clear [that] the risks to inflation outweigh the risks to maximum employment.

"That's why we raised rates" at last week's September Fed meeting.

Gold's drop to $4278 today saw silver prices also fall towards 1-week lows along with fellow industrial precious metals platinum and palladium, dropping to $64.38 per troy ounce, $1749 and $1257 respectively.

Global stock markets meanwhile slipped on the MSCI World Index despite New York's Nasdaq 100 of US tech stocks setting a fresh all-time high at Tuesday's close for the first time since June.

"Never have stocks owed so much to so few," jokes Bloomberg columnist John Authers, co-opting Winston Churchill to note that "half of Tuesday's rise in the Nasdaq was attributable to four [giant AI] chipmaking companies" Micron, Sandisk, AMD and Nvidia.

The Nasdaq 100's gain of 6.4% over the week to Tuesday night "came even though 32 members suffered falls."

US and Iranian negotiators today met in New York on the sidelines of the United Nations General Assembly despite the theocratic regime in Iran rejecting US President Trump's threat of "annihilation" as an admission of "desperation" with his war in the Middle East.

November futures for Brent crude oil today topped $100 per barrel again after dipping below that level for the first time in 2 weeks.