The more seasoned among us will surely remember the “Back to the Future” film series, in which Michael J. Fox travels by time machine, alternately to the past and the future. For anyone unfamiliar with it: even many years after their theatrical release, the films should still be well worth watching. Why am I opening today’s market report with this? Because a look at US Treasury yields right now makes it feel as if we had traveled back to the mid-2000s in a time machine.
US Treasuries: yields back at 2007 levels
Yesterday, for example, yields on five-year US Treasury bonds rose above the 5.0 percent mark for the first time since 2007. The 5.13 percent on ten-year bonds and the 5.40 percent on 30-year bonds were likewise last seen for US Treasuries in 2007. Yields on eurozone government bonds, particularly in France, also climbed to levels not seen in more than a decade.
Headwinds for gold: strong US dollar and higher rate expectations
As if that weren’t enough headwind for gold prices, the US dollar also benefited yesterday from very strong economic data out of the US, as well as from its supposed role as a “safe haven” in times of market turbulence. Moreover, expectations of further key interest rate hikes by central banks rose significantly yesterday. Although gold prices had held up remarkably well against the Fed’s key interest rate hike at the end of last week, following a few brief “moments of panic,” the sharp rise in bond yields, together with the appreciation of the US dollar, ultimately turned into a drag after all.
Gold price: from gains to a downward slide
Gold prices were still quoted at around 4,290 US$ per ounce last Thursday morning, narrowly missed the 4,400 US$ per ounce mark on Friday, and closed last week at 4,380 US$ per ounce. Prices moved up and down somewhat in the new week, but yesterday morning gold was still temporarily quoted at 4,370 US$ per ounce. Then came the mix of sharply rising yields and a very firm US dollar mentioned above, which sent gold prices sliding, as far as roughly 4,274 US$ per ounce overnight. Gold is currently trading only slightly firmer, at around 4,285 US$ per ounce.
Xetra-Gold: weaker euro supports price
The Xetra-Gold price was somewhat supported by the euro’s weakness against the US dollar. During regular trading hours, it did initially rise from 120.55 € per gram last Thursday morning to around 123.15 € per gram on Friday. It also dropped yesterday, but at its daily low of 120.70 € per gram it held at least slightly above the prior-week level mentioned above. Xetra-Gold would have opened at just under 121.00 € per gram this morning if the 8 a.m. price were still valid, although that is not quite the case in volatile trading.
Market outlook: nervous backdrop into quarter-end
Oil prices and bond markets are likely to set the direction in the coming days as well. In this nervous environment, and with the end of the quarter approaching, price swings in either direction are possible. That said, generally speaking, gold prices still held up relatively well this week in light of the unusually strong rise in bond yields.
I wish all readers a lovely early-fall weekend with glorious weather.