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Gold drops to a 3-month low as yields climb on signs of progress U.S.-China trade talks

Thu Nov 07 2019

 

Gold futures dropped Thursday to post their lowest finish in three months and largest weekly percentage decline in more than a year.

 

Renewed optimism about a near-term, partial U.S.-China trade agreement stirred a rise in debt yields, dulling the appeal of precious metals.

 

On Thursday, China and the U.S. agreed to lift some tariffs on one another in stages if the two countries reach a partial trade deal.

 

“This is what [the two sides] agreed on following careful and constructive negotiations over the past two weeks,” said China Ministry spokesman Gao Feng, during a regularly scheduled news briefing.

 

December gold GCZ19, +0.35%  on Comex declined $26.70, or 1.8%, to settle at $1,466.40 an ounce, more than wiping out its 0.6% gain from Wednesday. The settlement was the lowest since Aug. 2 for a most-active contract, according to FactSet data. December silver SIZ19, -0.06% shed 58.8 cents, or 3.3%, at $17.01 an ounce.

 

For the week, gold trades roughly 3.2% lower, which would mark its sharpest such decline since the week ended May 5, 2017, according to FactSet data. Silver’s down nearly 5.9% for the week so far, poised for the biggest weekly drop since the week ended July 7, 2017.

 

“A gyration in market risk has continued to add upwards pressure to underlying gold allocations, while recent monetary policy guidance, strength in US equities, and potential trade deal headlines have obumbrated the market, capping the upside,” Christopher Louney, commodity strategist at RBC Capital Markets, wrote in a research note Thursday. “We largely expect these trends to continue, and to balance out to ongoing interest in the space albeit with price consolidation before year-end – at least absent a significant risk-off event materializing.”

 

A surge in yields for government paper poses a threat to bullion as investors tend to gravitate to assets perceived as safe investments that offer higher yields, and precious metals don’t bear a coupon, analysts say.

 

The 10-year Treasury note yield TMUBMUSD10Y, -0.67% was at 1.9274% on Thursday, compared with 1.727% at the start of November. Meanwhile, the U.S. dollar has climbed, up 0.2% at 98.153, as gauged by the ICE U.S. Dollar Index DXY, -0.01%, a measure of the dollar against a half-dozen currencies.

 

“What ultimately matters more for gold is the hard and exact inverse correlation to US yields and the US dollar,” wrote Stephen Innes, market strategist of the Asia Pacific region at AxiTrader, in a daily research note.

 

“With US 10-year nominal yields loitering around 1.85% and the dollar looking more attractive gold loses some of its shine,” he wrote.

Gold prices also declined on the back of gains in benchmark U.S. stock indexes, with the Dow Jones Industrial Average DJIA, +0.66%, S&P 500 index SPX, +0.27%  and Nasdaq Composite COMP, +0.28%  notching new intraday records Thursday.

 

Other metals on Comex saw mixed trading, with December copper HGZ19, -1.01%  up 2.4% at $2.7275 a pound and December palladium PAZ19, -0.52%  at $1,777.80 an ounce, up 1%, but January platinum PLF20, -0.50%  losing 1.9% to $914 an ounce.

 

 

Source: https://www.marketwatch.com