Bond markets set the tone

After a to week-long vacation, I am back to reporting and looking into the major pressure gold prices have been under this week. I find it rather astonishing that they have held up very well for a long period. It was, after all, under severe pressure from two sides in September: The almost unstoppable rise in yields on the bond markets and the noticeable appreciation of the US dollar.

Government bond yields remain high

While inflation rates in most countries are now well below their highs of last year or this winter, the oil markets in particular are seeing prices rise to their highest level in a year. These are the first warning signs that inflation may remain above central bank targets for some time to come. Uncertainty about Fed future monetary policy in particular, the pricing out of possible interest rate cuts for the first half of 2024 and fears that inflation has come to stay have thrust government bond yields to levels not seen in a long time. Yesterday, yields on 10-year Bunds climbed to 2.978 per cent, their highest since 2011, 10-year Treasuries stood at 4.68 per cent, the highest level since 2007. 30-year Treasuries even yielded slightly higher.

US dollar index at yearly high

Since US government bonds are regarded as “safe” investments and yields in these dimensions are likely perceived as attractive to many investors, gold prices had a hard time, especially this week. Also, the US dollar index rose to a new ten-month high, which translated into gold becoming more expensive outside the US due to the currency effect.

Gold in US dollars currently at 1,870 per ounce

Gold prices held their own for two and a half weeks, but ultimately faltered. Three weeks ago on Friday, the precious metal traded at 1,925 US$ per ounce. It initially traded mostly sideways around 1,920/25 until it bounced to 1,947 on 20 September shortly after the Fed meeting. However, after the markets collectively expected the Fed to commit to long-term tightening of its monetary policy, gold prices weakened. However, with this week’s sharp rise in yields, the gold price slipped further mid-week, first below the 1,900 US$ per ounce mark on Tuesday evening and then down to 1,858 yesterday. Massive selling activity by large investors is said to have been responsible. This morning, gold kicks off the European trading day at around 1,870 US$ per ounce.

The Xetra-Gold price over the past three weeks

The Xetra-Gold price was slightly supported by the depreciation of the euro against the US dollar, but in the end it also weakened. From 57.75 € per gram on Friday three weeks ago, it marked its three-week high at 58.40 at the beginning of this week due to the weak euro. However, the sharp slide on Wednesday dragged prices down to around 56.55 yesterday. Xetra-Gold was expected to start trading this morning around a somewhat firmer 56.75 € per gram.

Markets are currently under the spell of bond market developments. Further rising yields would be an unfavourable development for gold prices. If they soon reach a peak, gold might see a countermovement. Today’s markets will look at quarter-end earnings, and coming up next week is the publication of US labour market data.

I wish all readers a great, sunny weekend.