Gold News

Gold Prices Near 1-Month Lows as Bonds Slide, 'Further to Fall' as Euro QE Seen 'Boosting Inflation'

GOLD PRICES fell near 3-week lows against the US Dollar late in London trade Wednesday, while Euro prices hit 1-month lows as the single currency extended its 4% rise on the FX market and government bond prices fell hard once again.
 
As Western stock markets cut their earlier gains, and new private-sector data said US payrolls expanded by 201,000 last month – right in line with analyst forecasts – the drop in debt prices pushed 10-year US Treasury bond yields up to new 6-month highs.
 
The Eurozone's quantitative easing is "proceeding well," said ECB president Mario Draghi today, telling his regular press conference that QE has "contributed to a broad-based easing in financial conditions, a recovery in inflation expectations, and more favourable borrowing conditions for firms and households."
 
With Eurozone consumer prices showing 0.3% annual inflation in May, Draghi re-stated the ECB's 2.0% target, and its commitment to continuing with €60 billion per month of new QE government-bond purchases.
 
The sell-off in Eurozone government bonds worsened Wednesday, however, with 10-year German Bund yields jumping 0.17 percentage points to reach 0.88% as prices dropped, extending the fastest 3-month rise in Berlin's borrowing costs since mid-2008.
 
Back then, German yields rose to 4.50% as the European Central Bank raised its key interest rates just before the collapse of Lehman Brothers.
 
"Gold prices still have room to fall," says a new analysis from Bernard Dahdah at French investment and bullion bank Natixis, pointing to lower production costs for the world's gold miners – now put at $960 per ounce on an all-in sustaining basis.
 
"Gold producers therefore have limited incentive to cut output since the vast majority of mines remain profitable."
 
Crude oil's Opec cartel today agreed not to reduce their national output quotas, with "big oil" companies apparently the "surprise victims" after seeing profits drop 50% in the first quarter already.
 
Market prices reversed yesterday's 2% gains, dropping almost 7% from early May's 6-month high.
 
"The oil bust is sweeping away another 200 jobs in Texas," reports the Houston Chronicle, "this time striking the manufacturing and trucking companies that support the battered [US] oil field services sector."
 
"Commodities have had a wonderful ten years," says UK asset manager F&C's Gary Potter, "but the [next] decade will be a very tough period as the world economy uses and recycles resources more efficiently.
 
"We do not hold any dedicated commodity funds; we think they are potentially on life support."
 
"Gold is still cheap relative to fixed income," counters commodities fund manager Nicholas Johnson at US investment giant Pimco, pointing to the record-low yields offered by government bonds because of their record-high prices.
 
"Gold could really pop and move."

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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