GOLD PRICES bounced $5 per ounce lunchtime Wednesday in London from $1960 – their lowest of the week so far – as European stock markets rose sharply from 4 days of losses amid a drop in both the 19-nation Euro currency and longer-term interest rates following data showing the cost of living across the Eurozone falling into deflation for the first time 4 years, writes Adrian Ash at BullionVault. Euro gold prices rose towards €1660 per ounce, the top of the last 2 weeks’ trading range.
That, like Wednesday’s US Dollar and Euro gold price, marked a new record high when first reached in late-July. Inflation-adjusted yields on 10-year US Treasury bonds meantime tell Wednesday to new lifetime lows at -1.11% per annum, while real rates on 5-year debt fell to -1.44%, the lowest since Spring 2013. Gold’s inverse relationship with real interest rates reached a near-perfect -1.00 in early August as the metal set its current all-time high of $2075, but has weakened markedly since, with the 5-week correlation between Dollar gold prices and 10-year TIPS reaching -0.58 on a rolling 5-week basis after touching -0.99.
August brought ” plenty of action to drive position rebalancing,” says a note from the Asian trading desk of Swiss refining and finance group MKS Pamp, pointing to last week’s Jackson Hole speech from US Federal Reserve chief Jerome Powell – vowing to let inflation rise above its 2% target to support the economic recovery – plus Japanese prime minister Shinzo Abe’s surprise resignation for health reasons. “[But] in the end it was largely old themes which prevailed – Dollar weaker, gold stronger, and US equities higher…with ‘reflation’ trades stepping back in.”