Gold $2500 as Sept' Rate-Cut Bets Drop, China Fails to Buy Again
Monday, 9/09/2024 14:53
GOLD PRICES regained the $2500 level Monday lunchtime in London, trading at what was a new record high only 3 weeks ago even as speculation grew that the Federal Reserve will cut US interest rates by just a quarter-point at next week's September meeting, while China's central bank said it bought no gold for its reserves for the 4th month running in August,
writes Atsuko Whitehouse at BullionVault.
Having dipped through $2500 per Troy following
Friday's mixed US jobs data, spot gold rebounded $16 per Troy ounce today from an earlier 0.5% drop to $2485, made during Chinese trading as bullion prices on the Shanghai Gold Exchange continued to show a discount to London quotes, suggesting soft demand in the precious metal's No.1 consumer market.
"[Friday's] US jobs report turned out not to be weak enough to warrant a 50 basis-points cut on September 18," says derivatives platform Saxo Bank's commodity Strategy Team.
That growing consensus "potentially signals downside risks to [US] government bond prices that may weigh on gold in the short term" by raising the longer-term cost of borrowing.
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With debt prices slipping Monday, the yield on the rate-sensitive 2-year US Treasury bond rose 5 basis points from Friday's 18-month low of 3.65% per annum. But it remained below 10-year Treasury rates, keeping the US yield curve positive after ending a record 25-month stretch of
a recession-warning "inverted yield curve" 2 weeks ago.
Betting in the Fed Funds futures market says that the probability of a 50 basis-point rate cut a week on Wednesday has dropped from over 1-in-2 a month ago to just 1-in-4 on Monday, according to
the CME's FedWatch tool.
But the likelihood of a total 1.25 points of cuts between now and Christmas has risen from 25% to 40%, suggesting that if the Fed only cuts by 25 basis points this month, the interest-rates market is still likely to expect a more dramatic 50 bps cut in each of November and December.
"It is now appropriate for the central bank to reduce interest rates," said New York Fed President John Williams immediately after Friday's non-farm payrolls report, albeit while highlighting the importance of watching new economic data closely.
"The time has come," agreed Federal Reserve Governor Christopher Waller
in separate remarks, adding just ahead of the 'blackout' period for policymakers to speak before next week's decision that "If the data suggests the need for larger cuts, then I will support that as well."
Looking ahead to this week's US data, "A weaker-than-expected consumer or producer price report won't be enough to spur a heftier rate cut," reckons Vincent Deluard, director of global macro strategy at brokerage Stone X Group Inc.
The European Central Bank is then set to hold its monetary policy meeting on Thursday, with market consensus expecting the 20-nation ECB to reduce its deposit interest rate by 25 basis points to 3.50%, marking the second rate cut this year.
European stock bourses rallied on Monday, with the pan-European Stoxx 600 gaining 0.8% while US stock futures also jumped after falling all last week.
But Asian equities fell overnight as mainland China's CSI 300 dropped 1.2% to its lowest since February's 5-year low after China's consumer-price inflation data for August came in below expectations at 0.6% per year, while its producer price index showed annual deflation of 1.8%, almost half-a-point deeper than analysts forecast.
Gold prices on the Shanghai Gold Exchange continued to show a discount to London on Monday, deterring new imports of bullion. But the gap fell to its smallest since mid-August at $1 per Troy ounce, extending the trend which saw last week's average narrow to $5.
The People's Bank of China again bought no gold in August,
its reserves data showed at the weekend, after it had bought 316 tonnes over 18 consecutive months to May, taking its central bank gold holding up to 2,264 tonnes.
But last month's new record gold prices still pushed up the value of China's
official central bank gold holdings by 3.6% to a new record of $183 billion, accounting for 5% of the PBoC's total reserves – the highest share since 1996.
Crude oil rebounded slightly on Monday after recording its biggest weekly fall in 11 months amid ongoing concerns about global demand.
Prices for silver, primarily an industrial metal, rose 0.7% after hitting a 3-week low on Friday beneath $27.70 per Troy ounce.
Gold priced in Euros rose 0.3% on Monday to reaching €2261 while
the UK gold price in Pounds per ounce was up 0.4% to £1908.
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