Gold News

Gold Bullion Sinks with Stocks as BoE, ECB Join Fed in Raising Rates

GOLD BULLION prices fell sharply in Asian and London trade Thursday, hitting multi-week lows 2.5% below Tuesday's spike as the UK's Bank of England and the European Central Bank both followed the US Federal Reserve in raising their key interest rates by half-a-percentage point.
Despite all 3 rises being slower than the Fed, ECB and BoE's most recent hikes of 0.75 points, and despite pundits, analysts and traders all expecting half-point moves as delivered, global stock markets also dropped, extending yesterday's late fall on Wall Street and pulling the MSCI World Index down another 0.4%.
"The [Fed] is strongly committed to returning inflation to its 2% objective," said the US central bank in Wednesday's policy statement, raising overnight Dollar rates to a ceiling of 4.50% in the face of 7.1% consumer-price inflation.
"Further increases in Bank Rate may be required for a sustainable return of inflation to target," said the Bank of England this morning after raising UK rates to 3.50% in the face of 10.7% inflation.
"Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand," the 19-nation ECB then said Thursday lunchtime, raising the annual returns paid on commercial-bank deposits to 2.0% in the face of 10.0% inflation.
Two members of the Bank of England voted for no change at 3.0%, and 1 voted for a second 0.75-point hike.
While new forecasts from the US Fed's policy committee now say 2023 will end with short-term Dollar rates at 5.1% per annum, betting in the futures market went the other way overnight, raising the odds of next year finishing with rates at or below today's ceiling of 4.50% at better than 2-in-3, the strongest such reading on the CME's FedWatch tool for more than 2 months.
Chart of market-based odds of US Fed Funds target rate ending 2023 at 4.5% or below vs. Dollar gold price. Source: BullionVault via CME, LBMA
The Dollar rallied a little from yesterday's new 6-month low against the rest of the world's major currencies.
That still left the DXY erasing well over half this year's 20% rise to the 2-decade peak hit in late-September.
Gold bullion dropped to $1775 per ounce, its lowest in more than a week and $50 below Tuesday's 5-month peak following weaker-than-expected US inflation data.
The UK gold price in Pounds per ounce touched 6-week lows beneath £1440 as Sterling rose on the BoE news.
Euro gold bullion prices also hit their lowest since end-October, dropping to €1667 as the EuroStoxx 600 index of the wider region's stock markets lost 1.7%.
"Broadly into 2023," Reuters quotes Singapore bank OCBC's foreign exchange strategist Christopher Wong, "I still favour gold to trade higher.
"But near term into end-year, I won't rule out any profit-taking or pullback in prices."
Wednesday saw giant US-listed gold ETFs the GLD and IAU both shrink in size, while the SLV silver ETF also saw net liquidation by investors, with its number of shares in issue shrinking by 0.4%.
Comex futures and options were also muted, with the daily trading volume in gold derivatives falling by 80% from Tuesday's spike – when gold prices jumped to 5-month highs – on the weaker than expected US inflation data.
Volumes for the other precious metals also fell back to pre-inflation data levels, down 52% in silver futures and options, 18% in platinum and 41% in palladium derivatives. 

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.

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