Gold News

Gold Price Doubles 2009 Level as Real Interest Rate Hits 14-Year High

The DOLLAR price of gold fixed above $1900 per Troy ounce yet again on Wednesday, holding that level at London's afternoon benchmark auction as global stock markets also traded unchanged ahead of the Federal Reserve publishing minutes from its end-July meeting, when policymakers raised the cost of borrowing because "inflation remains elevated".
With the Fed raising its key interest rate to a ceiling of 5.5% last month, US inflation accelerated to 3.2% per year while the underlying cost of living – excluding food and fuel prices – saw inflation edge back to 4.7%.
So-called 'breakeven' inflation forecasts in the bond market have dropped by half-a-percentage point since the Fed began raising overnight interest rates from zero in March last year, holding at 2.3% per annum on a 10-year horizon in Wednesday's trade as the yield on 10-year Treasury Inflation-Protected Securities – widely known as the 'real rate' of interest – slipped just 1 basis point today from Tuesday's finish at 1.89% per annum, the highest since early July 2009.
Gold prices were then trading at $920 per Troy ounce.
Chart of 10-year TIPS yield vs. Dollar gold price. Source: BullionVault
"[This] significant tightening of financial conditions, on top of what the Fed is doing...will collectively sap liquidity-sensitive precious metals in the near-term," says a note from strategist Nicky Shiels at Swiss gold bullion refining and finance group MKS Pamp.
"[But] it looks like fragile international economies (with some local catalysts) are crumbling under the weight of the toxic mix of higher US Dollar and higher US interest-rate regime...[backing the case for] gold increasingly becoming an insurance policy for investors with higher portfolio allocations."
Most plainly, says Shiels, "China IS a massive worry for commodities."
Oil prices today rallied after slipping almost 3% from last week's new 2023 highs as news of a stronger-than-expected drawdown in US stockpiles offset concerns over the economic slowdown in China but copper held near 2-month lows as the Chinese property sector's debt repayment crisis spread to state-owned developers.
Following yesterday's surprise cut to People's Bank interest rates, the Communist dictatorship in Beijing "will strengthen the coordination of various policies...boosting consumption and promoting investment" state media said on Wednesday following a cabinet meeting chaired by premier Li Qiang.
"Chinese modernization is the modernization of common prosperity for all, which differs from Western modernization," says a new article from President Xi Jinping, published today in the Chinese Communist Party's quarterly Qiushi Journal.
"Efforts should be made to ensure that the achievements of modernization benefit all more fairly and prevent polarization."
The gold price in China – the precious metal's No.1 mining, consumer and central-bank buying nation – held near 10-month highs relative to London quotes on Wednesday, showing a premium of more than $30 per ounce as weak gold demand continued to be masked by tight supplies.
UK gold prices in Pounds per ounce meantime fell to 1-month lows beneath £1500, and the Euro price held little changed from its level of mid-July at €1745.
Silver in contrast held little changed for the day at $22.60 per ounce, down $2.50 from the peak hit 4 weeks ago.

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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