Gold prices continue to decline in the second session this week, reaching the level of $1904 an ounce, at around 9:00 GMT today. This continuous pressure on gold comes with the strength of the US dollar and the rise in US Treasury yields.
The US dollar is gaining more strength this week as well, as it is a safe-haven currency. This is especially after the influx of more negative data from the Chinese economy at dawn today, which comes after a previous series of disappointing data, which in turn comes within a turmoil in the Chinese real estate sector and a growth slowdown.
Today we witnessed the release of industrial production figures in China, which slowed more than expected with a growth of 3.7% compared to an expected growth of 4.4% on an annual basis in July. Also, today we had seen a noticeable decline in Chinese retail sales, with it registering a growth of 2.5% in July on an annual basis, less than the previous reading of 3.1% and far below expectations of 4.5%.
In addition to the rise in the dollar, we are witnessing a continuation of the rise in US Treasury yields to the highest levels in more than a month. As the yield on two-year Treasury bonds increased and approached the 5% level for the first time since last July 7. We also saw a significant increase in bond yields for ten years to 4.223%, which is the highest level since November of 2022.
I believe that the continued rise in short- and long-term bond yields is hurting gold prices in two ways and we should watch them closely. On the one hand, the rise in short-term bond yields reflects the market’s expectations of continued inflation stickiness, as well as interest rates remaining at relatively high levels for a longer period than expected, which would put more pressure on gold by favoring high-yield bonds.
The US Producer Price Index figures for July, which were released last Friday, reinforced those expectations about inflation and the interest rate, with readings that exceeded expectations, whether at the level of the headline or the fundamental reading, which excludes volatile items.
On the other hand, the rise in long-term bond yields reflects the optimistic growth expectations of the US economy, which dispels uncertainty and reinforces expectations of the US economy’s ability to overcome recession, which may also harm gold as one of the safe havens.
As long-term growth expectations may be reflected in higher interest rates in order to combat inflation that may arise from the rapid growth of the economy, while long-term bond yields are the benchmark for long-term interest rates in the market.
As for today, the markets are looking forward to the US retail sales figures for the month of July, in order to provide a clearer picture about the future path of inflation and the ability of individuals to spend. We also await tomorrow the publication of the minutes of the last meeting of the Federal Open Market Committee, in order to get a deeper look at what is going on in the corridors of the Federal Reserve.