Gold News

Gold Rebounds, Silver Jumps to 4-Week High as Jobless Claims Dent Fed Rate-Rise Bets

GOLD PRICES rebounded and silver bullion jumped on Thursday as the US Dollar fell together with betting that the Federal Reserve will raise its key interest rate next week after US jobless benefits data pointed to weakness in the world No.1 economy's labor market.
Initial claims last week jumped to the highest since October 2021, up by more than 2/5ths from last fall's 5-decade low.
Betting rose that the Federal Reserve will now pause its interest-rate rises at its June 14th meeting, putting the likelihood of the US central bank holding its effective rate at today's 5.08% up from 2-in-3 to more than 3-in-4 according to the CME derivatives exchange's FedWatch tool.
The Dollar gold price regained all of yesterday's $25 drop towards last week's 2.5-month lows, fixing around $1967 per Troy ounce at London's bullion market afternoon benchmark auction.
Silver prices meanwhile leapt more than 50 cents to a 4-week high near $24.25 per ounce.
But year-end forecasts for the Fed Funds rate edged higher however following the jobless benefits claims data, putting the consensus outlook for December 2023 at 5.02% per annum after it had retreated 7 basis points from last week's peak of 5.08%, the highest such market prediction since before March's mini-crisis in US regional banking.
Chart of silver bullion price. Source: BullionVault
"We are definitely repricing rate expectations higher," Reuters quotes French investment bank SocGen's strategist Kit Juckes, pointing to "the realisation that the pause doesn't mean the end" of rising borrowing costs.
Both the Reserve Bank of Canada and the Reserve Bank of Australia this week surprised analysts and traders by raising their overnight interest rates yet again.
Short-term rates in the US Treasury market may also rise in the coming weeks and months, major news outlets report, as the government scrambles to re-stock its cash holdings following last week's resolution to the latest US debt-ceiling argument in Washington.
"[With] the Treasury General Account...fallen to an alarmingly low level," says analysis from German financial giant Deutsche Bank, "the subsequent rebuild will likely be one of the largest in debt limit history."
Last Friday, before the Biden-McCarthy debt deal was passed, the TGA held barely $23 billion, down almost 85% from 2 weeks before.
"The potential hit to the economy once Treasury goes to market selling that much debt could be extraordinary," reckons another commentator, saying that "it's difficult to imagine Treasury going out and selling what could be $1 trillion of bonds and not have that have an impact on borrowing costs."
That potential $1 trillion debt-raising by the Treasury "is worrying for gold bulls in the short term" said Swiss bullion refining and finance group MKS Pamp in a note last week, because it will be "essentially draining liquidity from the markets" by taking that cash off banks and investors. 
Having spiked to the highest since New Year 2001 at 5.55% last week as the debt deal was passed by the House and the Senate, 3-month rates today held little changed from Wednesday's 3-week lows beneath 5.30% per annum.
But outside Christmas and the US regional banking mini-crisis of March, the rate on 3-month Treasury bills has now exceeded the effective Fed Funds rate without break since January 2022.
That's the longest ever such stretch of 3-month yields trading above the Fed's overnight borrowing rate on records going back to 1981.
Elsewhere this week, Japan's GDP growth for Q1 was revised higher to 0.7% from the previous 3 months, but Thursday's data releases said the 19-nation Eurozone entered a "technical recession" between January and March, with GDP falling by 0.1% for the second consecutive quarter.
Australia's GDP growth was meantime downgraded to 0.2% for Q1 a day after the RBA raised rates to an 11-year high at 4.1% following April's consumer-price inflation accelerating back to 6.8% per year.

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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