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Gold Price Hits 7-Month Low as Bets on 'Higher Sooner' Jump After Shutdown Deal

The DOLLAR GOLD PRICE hit a fresh 7-month low at the start of 2023's final quarter on Monday, falling with bond, equity and most commodity prices as expectations for US interest rates rose after the US government struck a deal with Republican opponents to avert a shut down until the middle of next month, writes Atsuko Whitehouse at BullionVault.
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With just an hour to spare before the debt ceiling deadline was due to strike, President Joe Biden signed a bill on Saturday to extend government funding for 6 weeks, but without any additional funding for sending arms or aid to Ukraine – already costing $75 billion and a source of outrage among hard-right Republicans.
"Previously, the market had assumed that the government would be shut down for the [Federal Reserve's] November meeting," Bloomberg quotes an analyst looking at the US central bank's interest-rate policy, "so the pricing favoured a December [rather than November] hike. 
"With these new developments, my guess is that the market will price in a greater chance of a November hike, which will mean more pressure at the front-end of the curve."
Chart of US Dollar gold price, last 12 months. Source: BullionVault
Positioning in Fed Fund futures contracts jumped Monday morning to price the odds of an interest-rate rise next month at 28% from the 18% seen before the weekend's deal, according to derivatives exchange the CME's FedWatch tool.
Major government bond prices meantime fell again, pushing up bond yields to fresh 2007 highs on most US Treasury debt, including the 10-year bond – a benchmark rate for government as well as many finance and commercial borrowing costs, now up 5 basis points to 4.63% on Monday.
The 10-year yield climbed almost 0.47% last month, the highest monthly jump this year.
The Dollar index – a measure of the US currency's value versus its major peers on the FX market – also rose Monday, up 0.3% by lunch time in London and extending last week's 3.1% leap, the 11th weekly rise in a row, as the 'higher for longer' mantra becomes the official stance of the US Fed.
Gold prices in the US Dollar fell 0.7% Monday morning to $1835 per ounce, the lowest since early March, after dropping nearly 4% last week to make the biggest weekly decline since June 2021 as wholesale demand from China – the precious metal's No.1 consumer – shut for Golden Week.
The yellow metal declined 4.9% on a monthly basis in September, down 3.3% on a quarterly basis.    
"As the supporting level [around $1900] was breached, speculators and leverage traders, who are taking cues from the recent deterioration in technical factors, resumed selling and the price fell below the recent lows," says Koichiro Kamei, a financial and precious-metals analyst in his latest note for Japan Gold Market Association, also noting that it was a month-end and a quarter-end last Friday, inviting many traders to cut their losses or bank their profits for book-keeping purposes.
Gold-backed ETF trust funds also continued to shrink, as the SPDR Gold Trust (NYSEArca: GLD) and the iShares gold ETF (NYSEArca: IAU) saw the 4th and 10th consecutive weekly outflows in a row, declining 0.4% and 3.3% to the smallest since August 2019 and April 2020 respectively.
Back in Washington, hardline Republican lawmaker Matt Gaetz says he will now move to oust Kevin McCarthy, the party's House Speaker, for working with the Biden Democrats to avoid a government shutdown, something which some Democrats would back "absolutely".
"Financial markets were bracing for a shutdown, so there's an element of relief, but it's only a temporary lifting of one of the clouds hanging over the markets now," says Yung-Yu Ma, chief investment officer at Canada's BMO Wealth Management division in Asia.
"Interest rates and Fed hawkishness remain the name of the game and the main driver of the markets over the next few weeks."
European stock markets fell with gold and bond prices, taking the Euro Stoxx 600 index 0.4% lower after its worst quarter of the year and two successive months of decline.
The 20-nation Eurozone's manufacturing sector remains stuck in a deep and prolonged downturn as factory orders plummet and job losses accelerate, new PMI survey data said Monday.
Both gold priced in Euros and the UK gold price in Pounds fell 0.4% towards 6-week lows below €1742 and £1510 per ounce.
The price of silver, primarily an industrial metal, fell 2.3% to $21.67, worsening last week's 5.9% decline.
That pushes the Gold/Silver Ratio – which tracks the two formerly monetary metals' relative prices –  further up towards 85, the highest value for gold versus silver in over 8 weeks. 
Over in Japan – the world's 3rd largest national economy – the central bank today announced it will buy Japanese government bonds to boost their price and push down their yield after 10-year borrowing costs rose to 0.77% per annum, the highest in a decade.

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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