Gold prices in New York edge higher Thursday, set to recoup their losses from a day earlier as losses in U.S. and global stock markets, along with inflationary concerns, lift demand for the precious metal.
Prices for gold decline as global stock markets fell, and as benchmark U.S. stock indexes traded lower Thursday, “suggesting a bit of risk aversion present in the marketplace,” said Jim Wyckoff, senior analyst at Kitco.com.
The Dow Jones Industrial Average DJIA, -0.93% and the S&P 500 index SPX, -0.90% were moving lower Thursday. Global stocks also saw broad declines.
Against that backdrop, December gold GCZ8, +0.17% rose $6.30, or 0.5%, to $1,209.20 an ounce, after declining by 0.3% Wednesday. The metal was set to finish at its highest since Sept. 20 and traded 1.1% higher this week so far, according to FactSet data, based on the most-active contracts.
Bullion had been under pressure recently from a one-two punch of rising U.S. government debt yields and a strengthening dollar.
“Strong U.S. economic data recently is driving U.S. bond and note prices lower,” said Wyckoff, and as bond prices fall, yields climb.
Private-sector employment soared in September, as employers added 230,000 jobs, Automatic Data Processing Inc. reported Wednesday. On Thursday, data revealed that the number of Americans applying for unemployment benefits declined at the end of September and returned close to a 49-year low as the effects of Hurricane Florence faded.
Because precious metals — usually used as a haven by investors — don’t offer a yield, the commodity is vulnerable to a slump in a rising rate environment. The Federal Reserve has already increased rates three times in 2018 and is expected to lift benchmark rates a fourth time in December, moves which can drive risk-free Treasury yields higher and undercut appetite for the yellow metal by comparison.
The 10-year Treasury note yield TMUBMUSD10Y, +0.22% traded at a high above 3.22% Thursday, extending a move to its highest level since 2011.
“Other world government bond markets are also seeing their yields rise, in sympathy to the U.S. This is yet another clue that creeping price inflation could become problematic down the road,” Wyckoff said. “That’s a bullish scenario for hard assets like raw commodities, and bearish for paper assets like stocks and bonds.”
Meanwhile, another headwind for gold, the dollar, was showing strength this week in tandem with rising rates for government debt because climbing yields also can lure currency investors into monetary units where they can park funds and collect attractive yields. Moreover, a beefier greenback can make assets priced in dollars, like gold, more expensive to potential purchasers using other monetary units.
The ICE U.S. Dollar index DXY, -0.24% which is heavily weighted toward the euro, was most recently down less than 0.1% at 95.686, but trades about 0.6% higher week to date.
The current market dynamic has some market participants forecasting a further downturn for gold.
“After waffling its way through September, the greenback is starting to reassert itself supported by a significant fair wind from the U.S. rates markets with 10-Year [U.S. Treasury yield TMUBMUSD10Y, +0.22% ] holding north of 3.15%, wrote Stephen Innes, head of trading at OANDA, in a late Wednesday note. “It is difficult to envision gold tracking any which way but down,” he said.
Mostly, bullion has been in a downturn that has been driven by slack in demand, but that dynamic may be shifting. The metal trades roughly 7.7% lower year to date, based on the most-active contracts, FactSet data show.
“Interestingly, the yellow metal tumbled by much less than one would have expected yesterday given the remarkable gains in the dollar, which suggests that demand may be slowly picking up,” wrote Marios Hadjikyriacos, analyst with brokerage XM, in a Thursday note.
Meanwhile, December silver SIZ8, -0.14% added 8.5 cents, or 0.6%, at $14.755 an ounce, after sliding by 0.2% on Wednesday. Gold’s sister metal was on track for a weekly rise of 0.3%.
