Gold prices are wrapping up the week by plummeting to a nine-month low, with the price per ounce descending to $1,858 on Thursday. Transitioning into Friday, gold is changing hands at $1,870 per ounce, marking a decline of 2.8% over the trailing five days. Concurrently, bitcoin (BTC) prices leaped on Thursday, and have ascended by 1.5% against the U.S. dollar over the course of the week.
Gold’s Downward Dive Mirrors Skyrocketing Bond Yields in a Market Stressed by Fed Policies
Precious metals such as gold and silver are on a descending trajectory, with an ounce of gold now 3.5% lower than its value 30 days prior. Silver too has faced a sharper decline, shedding 6.6% over the past month and 2.9% in the preceding five-day span. The leading duo of precious metals markets is enduring strain, a situation many attribute to the hawkish monetary stance emanating from the U.S. Federal Reserve.
The Fed’s pronounced quantitative tightening coupled with elevated interest rates is propelling bond yields upward, thereby amplifying the vigor of the greenback. Bond yields are soaring to unprecedented heights even against a somber economic horizon looming ahead. Peter Boockvar from Bleakley Advisors remarked on Thursday that the “epic sovereign bond bubble continues to unwind.”
Following a prolonged period of inversion, the spread between long- and short-term yields in bond markets has been reverting, albeit for unsavory reasons. “This to me feels like it should lead to a tightening of financial conditions, with a sharp rise in real yields and commodity prices, even though the Fed has told us it isn’t going to be hiking a lot more,” articulated Subadra Rajappa, the chief of U.S. rates strategy at Société Générale, on Thursday.
Rajappa added:
So the propagation of this pain is going to be through the markets, such as the mortgage market or credit market, where issuance is linked to benchmark yields like the 5- or 10-year rates. They are all going to start coming under pressure.
Economists at ANZ Bank suggest that the charm of gold returns may wane until the U.S. central bank makes a turn on interest rates. The allure of precious metals is thought to be poised for a resurgence next year, as the analysts at ANZ Bank forecast a diminishing vigor in the greenback’s strength.
“History suggests gold returns remain decent during rate hiking cycles and outperform during easing and a lower rate environment,” the ANZ market strategists note. “The negative beta with the U.S. yield weakens during hiking cycles and strengthens during easing cycles.”
The financial institution’s analysts added:
USD strength is likely to wane in 2024. While we think appreciation in the USD will sustain to year-end, firmer expectations of rate cuts and slowing economic growth momentum will see the USD dropping again next year.
Amid the descent of gold, bitcoin’s (BTC) price has ascended, breaching the $27K per unit mark on September 29. BTC bulls have successfully propelled market prices upward amidst economic ambiguity, with traders amassing profits. Bitcoin has mirrored the uptick in equity markets, as all four U.S. benchmark indices concluded Thursday on a positive note, and futures markets hint at a modest incline come Friday afternoon.
What do you think about gold’s downturn while bitcoin rises higher in value? Share your thoughts and opinions about this subject in the comments section below.
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