Gold Reclaims $1,320 Level Amid Bond Meltdown

January 10th, 2018 by

The precious metals joined other commodities in moving higher on Wednesday morning thanks to a sharp drop for the U.S. dollar and a massive sell-off of bonds. The gold price was up about $6 (+0.5%) to $1,319/oz in early trading after touching above the $1,320 mark. Spot silver added 9¢ (+0.5%) to trade at $17.03/oz. Platinum regained its footing at $970/oz but palladium went the opposite way, falling $6 (-0.55%) to $1,088/oz.

U.S. Treasurys saw a wave of selling as the bond market continued to tumble to begin 2018. The yield on 10-year T-notes rose to nearly 2.60%, a ten-month high. This also pushed yields higher on government debt around the globe. The sell-off may officially set off a bear market for bonds, no doubt influenced by reports that China will begin to scale back its purchases of Treasurys. Moreover, central banks like the ECB and BOJ will be less eager buyers of bonds as they unwind their quantitative easing programs.

The action in the bond market sent the dollar lower. The USD was down almost 0.5% to 92.0 on the DXY index. The euro advanced by the same margin against the dollar back to $1.20 but the pound sterling was flat at $1.35. The yen jumped better than 1% to ¥111.5 per dollar, a six-week high. The Chinese yuan was down to 6.5 per USD after the People’s Bank of China adjusted its price-fixing mechanism for the currency.

In a strange case of “fake news” causing confusion among forex traders, the South African rand briefly jumped 1% after the recently lost U.S. satellite happened to share a name, Zuma, with the country’s president. Trading algorithms picked up on news that “Zuma is lost” and mistook it as President Zuma resigning. The rand snapped back about 10 minutes later after people realized the mistake.

Stocks in Europe fell 0.4%. The German DAX index led the way lower, losing 1%. Shares were mixed in Japan due to the stronger yen. Wall St opened about 0.3% lower. Interestingly, the 130-year-old photography company Kodak saw its shares surge about 200% in just the past two days after the firm announced it will use the blockchain technology underlying cryptocurrencies to track the usage and royalties related to image rights management. This is part of a larger trend of established companies leveraging crypto technology in increasing numbers. Bitcoin itself was down more than 5% to $13,700 in early trading.

Commodities in general climbed higher on the futures market Wednesday. WTI crude was up 0.7% to $63.40/bbl, another two-year high, on falling oil stockpiles in the U.S.

In central banking news, Bill Dudley of the New York Fed and James Bullard of the St. Louis Fed will each be speaking later today.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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