GOLD PRICES sank $10 inside 30 minutes Friday lunchtime in London as new US data showed a stronger-than-expected rise in new jobs plus the largest annual rise in average wages since January 2009.
The Dollar jumped on the FX market, extending an overnight rally begun as the Bank of Japan became the first central bank amid 2018’s sell-off of government bonds to step into the market and buy in a bid to stem the resulting surge in longer-term interest rates.
Marking what analysts called “pre-emptive steps to fend off further rises in JGB yields” the Bank of Japan bought Japanese government bonds in the open market for “the first time in more than six months” according to Reuters – “a powerful show of force to direct the market.”
The rising price nudged the yield offered by 10-year JGBs just 0.005 percentage points lower at 0.090%.
With US non-farm payrolls expanding by 200,000 in January on the Bureau of Labor Statistics’ first estimate, average hourly earnings showed a 2.9% rise from the same month last year.
“The three [interest-rate] hikes pencilled in by the Federal Reserve are already discounted by markets,” says strategist Jonathan Butler at Japanese conglomerate Mitsubishi, “and it is only if a more aggressive pace is adopted that this could damage gold.”
Calling 2018 gold prices 2.2% above the consensus $1318 annual average predicted in this week’s new LBMA Forecast competition, “We believe that the Fed under new Chairman [Jerome] Powell will be disinclined to get ‘ahead of the curve’ in raising rates,” Butler goes on.
“Indeed [to avoid] choking off economic growth despite signs of rising inflation, the danger may be that the Fed undershoots its own rate hike target if economic confidence falters.”
Commodities were little changed Friday morning but Asian stock markets slipped overall and European equities fell hard as Western government bond prices fell yet again, driving up longer-term interest rates.
Eurozone government bond prices fell for the 6th time in 7 trading days.
That pushed 10-year German Bund yields up to 0.73%, the highest return offered to buyers since August 2015.
US Treasury bond yields meantime held near multi-year highs, with the benchmark 10-year bond offering almost 2.80% per annum to new buyers – the most since April 2014.
“Considering the tightening monetary policy in the US, rising US Treasury bond yields and record-setting equity markets, gold prices have done well to climb and even better to forge ahead,” says the latest monthly note from bullion bank Scotia Mocatta.
“Funds have been buying gold, while the short interest [in Comex derivatives contracts] remains low.”
“I do not believe bond yields have yet seen a secular bottom,” says the latest Global Strategy note from long-time stockmarket bear and ‘ice age’ economic forecaster Albert Edwards at French investment bank Societe Generale.
“I repeat my forecast that US 10-year yields will fall below zero,” Edwards goes on, noting analysis from SocGen’s technical team which says the yield would have rise above 3% as “the key breakout level” rather than the 2.6% claimed by other chart readings.
Ahead of Friday’s intervention, “The Bank of Japan is starting to face skeptics within its own ranks,” reported the Nikkei newspaper, pointing to this week’s release of minutes from the BoJ’s late-January policy meeting.
BoJ governor Haruhiko Kuroda claimed there was “very limited debate” about reducing Japan’s “unlimited” QE asset purchases, but “at least two board members argued for a change to the BOJ’s approach,” says the Nikkei.
Priced in Japanese Yen gold held onto its recovery of the past 4 weeks’ losses, trading 0.5% higher for 2018 so far at ¥4,737 per gram.
