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Gold posts lowest finish in nearly 2 weeks as bond yields climb

Thu Aug 22 2019


Gold futures posted their lowest settlement in nearly two weeks on Thursday, pressured by strength in bond yields as the Fed’s symposium of central bankers got under way in Jackson Hole, Wyoming.


While minutes from the Federal Open Market Committee’s July meeting released Wednesday afternoon “didn’t say anything new about the FOMC’s plans, both bonds and the gold market have moved too far, too fast not to take a pause,” Adrian Ash, director of research at BullionVault, told MarketWatch.


U.S. Treasury bonds weakened Thursday, sending the benchmark 10-year Treasury note yield TMUBMUSD10Y, +2.32% up 2.4 basis points to 1.6046%. Rising bond yields can dull the luster of gold, which offers no yield.


December gold GCZ19, -0.17%  fell $7.20, or 0.5%, to settle at $1,508.50 an ounce after trading as low as $1,502.10. Prices finished at the lowest for a most-active contract since Aug. 9, according to FactSet data. Gold futures trade 1.5% lower week to date, but have gained roughly 5% for the month so far.


“Also weighing on gold short term is the fact that consumer demand is struggling to accept these new higher prices,” said Ash. Since Aug. 7, gold futures have settled above $1,500.


Investors await a speech from Powell on Friday at the Jackson Hole symposium. Analysts are expecting Powell to confirm a widely anticipated September interest rate cut, but minutes from a meeting of the Fed’s rate-setting committee in July released Wednesday raised some doubts about the central bank’s conviction to deliver further stimulus to markets.


On Thursday, Philadelphia Fed President Patrick Harker and Kansas City Fed President Esther George indicated that they would not support further interest-rate cuts. Harker isn’t a voting member of the Fed’s rate-setting.


Lower interest rates and uncertainty about the economic landscape have helped to bolster gold prices because the precious metal is perceived as a haven asset and because shrinking debt yields can make metals more attractive as an investment because they offer no coupon.


“The decline in real interest rates has been the key driver for gold in 2019 so with Fed policy uncertainly filling airwaves, and investors are pulling back on some overextended gold hedges, even more so with new signs the eurozone economy is starting to base,” wrote Stephen Innes, managing partner at Valour Markets Pte in Singapore.


Indeed, some signs of green shoots in Europe’s economy emerged with the eurozone service sector PMI hitting a two-month high of 53.4, up from 53.2, and the manufacturing sector PMI recovered to 47.0 from 46.3, continuing to contract but at a slower pace.


However, the U.S. manufacturing services sector which showed manufacturing sector slipped into contraction with a reading of 49.9 in August, from 50.4 in July, to a 10 year low, and the services sector index slowed to 50.9 in August from 53.0 in July, a 3-month low.


“Traders continue to pare risk against the backdrop of a significant position build above $1,500,” Innes said of the level that gold bulls view as psychologically significant.


Among other metals, September silver SIU19, -0.12% lost 11.1 cents, or 0.7%, to $17.04 an ounce, while September copper HGU19, +0.61%  gave up 2.8 cents, or 1.1% to $2.5575 a pound. October platinum PLV19, +0.13%  added $3.80, or 0.4%, to $861.90 an ounce and September palladium PAU19, -0.36%  settled at $1,485.20 an ounce, up $19.70, or 1.3%.


Meanwhile, the SPDR Gold Shares exchange-traded fund GLD, -0.25% has lost 1% so far this week, while the iShares Silver Trust SLV, -0.50%  trades down nearly 0.4% week to date.