Gold Just £5 Off Record UK Price as 'Bond Vigilantes' Hit Labour
Wednesday, 1/08/2025 16:00
GOLD PRICES rose again on Wednesday, testing the past month's tops in Dollar and Euro terms while jumping within touching distance of the all-time high in UK Pounds as Western sovereign debt prices fell, driving borrowing costs higher amid signs of resurgent inflation and talk of 'bond vigilantes' trying to steer governments away from higher spending and budget deficits.
Gold bullion touched $2664 per Troy ounce for the 6th time in 4 weeks – some 4.5% beneath Halloween's all-time Dollar gold high – and rose close to €2589 for Euro investing, near its highest since mid-November's record.
The gold price in Pounds per ounce meantime leapt 2.0% to £2162 – just £5 below
the UK's all-time gold high – as Sterling sank on the FX market following yesterday's poor auction of new government debt.
London's borrowing costs today hit 5.45% per annum on 30-year Gilts, more than twice the latest pace of UK inflation and the highest rate since 1998.
Having moved in the opposite direction to 30-year Gilt yields almost 2/3rds of the time between 2004 and 2022 on a 3-month basis, the price of gold has since moved together with that rate of interest more than half the time.
Across the past 52 weeks, that figure rises to almost 70%.
Because bonds pay a fixed coupon each year, the yield they offer to new buyers in the open market moves inversely to the bond's price.
That's why the UK Treasury's 22/10/50 Gilt – launched in October 2020 offering 0.625% per annum when the Bank of England's overnight rate was 0.1% – has since fallen from £100 to just £36.50, down 1.3% in price on Wednesday alone and so far costing investors more than 3/5ths of their money over the past 4 years.
Rising borrowing costs mean "there is a significant chance that...Rachel Reeves is on course to miss her main fiscal rule," says London consultancy Capital Economics of the UK Finance Minister's upcoming Spring Budget.
"Even before the Office for Budget Responsibility can put pen to paper," agrees Deutsche Bank, pointing to the UK government's independent forecasters, "the razor-thin headroom left [for higher spending as promised by Labour in last July's election] has likely all evaporated."
But rather than curbing the left-wing Government's spending, "
Bond vigilantes have made another Labour tax raid almost inevitable," reckons anti-Labour newspaper
The Telegraph.
Borrowing costs also rose for other Western governments again on Wednesday, with 30-year US Treasury yields coming close to 5.00% – the highest since late-2023's decade-and-a-half highs – while 10-year German Bund yields rose above 2.5% for the first time since July.
That still lags last month's rising German inflation rate by 0.3 points per annum.
Like bond prices, global stock markets also fell Wednesday. But energy costs rose, with crude oil nearing 3-month highs as winter storms approached the south-west USA as European natural gas held close to last week's 14-month highs after sub-zero temperatures coincided with Ukraine ceasing to pipe Russian gas west.
Data this week so far says global manufacturing activity shrank yet again in December, but the services sector expanded in all major economies, accelerating across the Eurozone and China but missing analyst forecasts for Japan and the UK.
Job openings in the USA leapt unexpectedly on yesterday's Jolts figure for November, but the private sector ADP Payrolls report for December today said the world's largest economy added fewer jobs than analysts expected.
Claims for US jobless benefits fell last week, however.
In contrast to Western governments facing inflation if not 'bond vigilantes', world No.2 economy China now faces
'Japanification' says
a column from Reuters, as Beijing's 30-year borrowing costs fall below those of Tokyo for the first time in history amid the ongoing Chinese real estate, foreign investment and stock-market slump.
UK Gilt investors should "refrain" from worrying too much, says Canadian brokerage TD Securities, blaming yesterday's poor auction of new 30-year UK debt "mostly" on it being held as traders were only just returning from the Christmas and New Year break.
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