Gold News

Gold Price Shrugs Off Real-Rate and Fed 'Kryptonite' as Jobless Claims Rise

GOLD PRICES rallied back above $2000 per ounce Thursday as worse-than-expected US jobless data saw the Dollar slip with both global stock markets and longer-term interest rates.
Benchmark yields on 10-year US Treasury bonds had earlier popped to 1-month highs above 3.64% per annum before dropping back 10 basis points after the Department of Labor said initial claims for jobless benefits rose last week back to mid-March's 14-month highs, while continuing claims rose to the highest since November 2021.
The yield on 10-year Treasury Inflation Protected Securities – the benchmark for so-called 'real rates' – had also risen earlier back towards 4-week highs near 1.30% per annum, the most strongly positive real rate in more than a decade when reached last September.
Gold prices then traded below $1650 per ounce having traded beneath $1380 at the previous touch in February 2011. 
Rising real rates acted as 'kryptonite' to gold prices last fall and again in February, when the negative correlation between 10-year TIPS yields and gold prices reached its most extreme in a decade.
Chart of 10-year TIPS yield vs. gold priced in Dollars. Source: BullionVault
"The [short term] correlation between gold and real 10-year yields remains reasonably strongly negative," says John Reade, strategist at the mining industry's World Gold Council, "and well within the range seen over the past 6 years."
Put another way, "the relationship between gold and US real yields isn't [yet] broken."
With the US central bank currently targeting overnight interest rates around 4.83% per annum, betting that the Fed will raise its target by another 25 basis points at next month's meeting now outweighs bets backing 'no change' by 6-to-1, according to data from the CME derivatives exchange's FedWatch tool, up from 2-to-1 this time last week and below 1-to-1 at this point in March, when the mini-crisis in US banking saw Swiss giant Credit Suisse forced into a takeover by rivals UBS.
Betting on New Year 2024 meantime puts the consensus forecast at 4.66%, sharply above the 4.00% forecast for end-December shown by the FedWatch tool this time last month.
With UBS that day taking over Credit Suisse, gold prices popped above $2000 for the first time since the financial-markets' shock at Russia invading Ukraine 12 months earlier.
Sanctions against Russia over its invasion of Ukraine may now move to "a near-total embargo on exports" by the US and its economic allies in the G7 group of nations, Bloomberg reports.
As gold prices reached $2010 on Thursday afternoon in London, silver also regained last weekend's closing level, trading back at $25.35 per ounce.
Palladium meantime rose back towards Tuesday's sudden 10-week highs at $1620 and the price of platinum extended its run to fresh 15-month highs, rising within 20 cents of $1100 per ounce.
Mining some 75% of new platinum supply and 40% of palladium each year, South Africa today saw government-owned energy monopoly Eskom confirm that "load shedding" power cuts will continue "indefinitely" ahead of the winter.

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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