Gold Price Falls with Stocks as Bond Market's Bear Steepener Says 'Higher for Longer'
Thursday, 10/05/2023 16:53
The GOLD PRICE slipped to new 7-month lows in both Euro and Dollar terms on Thursday, losing over 6% from this point in September as European equities rallied from near-3% month-on-month losses but the US stock market fell again even as longer-term interest rates paused their sharp 'bear steepener'.
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The
gold price in UK Pounds – which fell hard today on the currency market as new UK data said
construction activity is shrinking while shares in one-time 'challenger' bank Metro were suspended
after sinking 30% as it struggles to raise finance – held 1.1% above mid-August's 2023 lows of £1478.
Gold priced in Dollars touched $1813 while Euro gold dipped to €1725.
Silver meantime extended its plunge to $20.80 per Troy ounce, down more than 12% as longer-term interest rates have jumped over the last month.
"Over the past few weeks
gold really took a tumble," Reuters quotes one commodities economist.
"The big driver for that appears to be
the rise in long-term US interest rates."
While 2-year US bond yields have now risen by 0.06 percentage points from the first week of September, the annual yield offered by 10-year Treasuries has jumped by almost half-a-point, also setting fresh 16-year peaks.
That has squashed the
'inverted' yield curve between 10- and 2-year rates, and the yield curve has also steepened sharply on most other G20 economy government debt, most especially rich-world bonds, with 10-year rates rising by 0.5 percentage points or more relative to 2-year rates for Australia, Canada, Germany and Italy, with the UK close behind.
Challenging a view on Bloomberg that "the bond market [is]n't buying the soft landing thesis, I disagree!" says one US financial advisor.
"The
bear steepener fits a narrative that
the economy can handle higher rates for longer."
US factory orders rallied better than analysts expected in August, new data said Wednesday, and job openings nationwide rose from July's 28-month low on the government's 'Jolts' data.
But the country's services sector saw activity growth slow towards zero on the S&P PMI survey while retreating from the strongest growth in 6 months on the ISM data, and – ahead of tomorrow's September jobs report from the Bureau of Labor Statistics – yesterday's ADP Payrolls meantime showed the weakest monthly growth in US employment since January 2021, missing consensus forecasts by over 50%.
Looking at who might be selling bonds and pushing down prices, "The Fed
isn't technically selling" but just not re-investing cash from maturing QE holdings, says Brad Setser, senior fellow at the Council on Foreign Relations.
"China probably isn't selling either [and] Japanese investors aren't selling like they did at times last year. [So] the structural issue in the Treasury market isn't so much outright sales, as the absence of price insensitive buyers.
Over the 3 months to Wednesday, the yield offered by 10-year US Treasury bonds rose almost 70 basis points faster than 2-year yields, close to matching the steepening of early 2021 and barely 10 basis points behind the shock 'bear steepener' of mid-2013.
The Dollar gold price sank by more than $400 per Troy ounce over the 3 months when that 2013 yield-curve steepener began, losing $200 in the first 3 months of 2021, and now dropping over $100 since early July this year.
Over the last 5,000 trading days however, the gold price has shown a statistically insignificant connection with the 10-2 yield spread on average, giving a median daily r-correlation of -0.13 on a 3-month basis.
That's exactly the same reading as that shown over the last 10 years between the 10-2 spread and the S&P500 index of US corporate shares, with both bullion and stocks also showing periods of strongly positive co-movement with the spread.
With gold priced in Russian Rubles meantime down over 5% from this time last month, the Finance Ministry in Moscow – locked out of international markets by US-EU sanctions over President Putin's war on Ukraine – yesterday said it's
looking to buy the equivalent of $4bn in gold and foreign currencies over the next 4 weeks.
Russia has been
the biggest central-bank gold buyer over the past 2 decades, moving into 5th position in the league table of national bullion reserve holders.
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