Gold News

Gold Price Defies US Bond Yields' New 16-Year Highs Ahead of 'Hawkish' Fed

GOLD PRICES jumped into Wednesday afternoon's London benchmarking auction, reaching new 2-week highs for Dollar investors and setting fresh 3-month highs in Euro and British Pound terms after defying a rise to new multi-year highs in longer-term US interest rates ahead of today's Federal Reserve decision as demand in China – gold's No.1 household consumer and central-bank buyer – continued to buoy local prices above $2000 per Troy ounce.
The gap between Shanghai and London gold prices rebounded to $85 per ounce, down from last Thursday's spike to $121 but extending this record run of strong premiums even after the People's Bank finally began issuing new gold bullion import licences on Friday.
Interest-rate traders meantime put a 99% certainty on the US central bank making no change to its current overnight borrowing costs today. But with new GDP, inflation and interest-rate forecasts also due from the policy-making FOMC on Wednesday, expectations for the first cut to Fed rates were pushed back again, with its May 2024 meeting now seen holding the effective Fed Funds rate at this month's 22-year record average of 5.33% per annum.
Consensus betting on June 2024 now predicts a rate of 5.24%, almost 10 basis points higher from the market's view this time last week and up from 4.98% a month ago according to data from the CME derivative exchange's FedWatch tool.
The yield on every shorter- and mid-dated US Treasury bond ended Tuesday at a new 16-year high, with only 20-year and 30-year rates failing to top last month's peak at the highest borrowing costs since late 2007.
Chart of US Treasury bond yields, 2-year (light green) through 30-year year (dark blue). Source: St.Louis Fed
"We think that the market may already be semi-braced for a hawkish pause," Reuters quotes strategist Eugene Low at Singapore bank DBS, referring to a possible repeat of June's higher "dot plot" forecasts for inflation and interest rates.
"Short of the Fed delivering beyond what is reasonably expected [ie, hiking rates], we think [further] upside to 2-year and 3-year Dollar rates may be limited."
Those shorter-dated US Treasury yields edged back Wednesday from last night's new decade-plus peaks, helping ease the US Dollar further back from last week's 6-month high against the rest of the world's major currencies on the FX market.
Gold in Dollar terms jumped back through $1940 per ounce, while the Euro price rebounded to €1812, also now higher for the week so far after yesterday's August cost-of-living data for the 20-nation currency zone showed the weakest pace of inflation since January 2022, eve of Russia invading Ukraine.
The No.2 gold-mining nation behind China, Russia last year became the UAE's No.1 source of gold imports, analysis of Comtrade data for the Middle Eastern hub by Bloomberg says, as it was locked out of Western gold markets by US, EU and UK sanctions and market embargoes.
While Russia's President Putin today met Chinese foreign minister Wang Yi for talks in St Petersburg, Ukraine's European allies, plus Australia and Canada, asked the World Court to proceed with Kyiv's case against Moscow for abusing the United Nation's Genocide Convention as "a pretext" for  its ongoing war.
Crude oil prices meantime slipped from their new 2023 highs ahead of the Fed, and UK inflation data also slowed more last month than analysts expected, boosting calls for a pause at the Bank of England in raising Sterling interest rates again at tomorrow's September meeting – still the consensus view in the market.
That saw the UK gold price in Pounds per ounce pop to a fresh 3-month high at £1565 as Sterling dipped on the FX market before it then rose to £1567 around the London PM bullion auction. 
Silver meantime held firm and then rallied alongside gold, trading above $23.45 per Troy ounce.

Adrian Ash

Adrian Ash, BullionVault Gold News

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.

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