Gold continues its losses for the fourth consecutive day, failing to hold the $2,400 per ounce level in spot prices.
Gold’s losses come amid mild recovery in the US stock market, coupled with a rebound in Treasury yields and continued brilliance of bond ETFs. The yellow metal’s losses also continue despite extreme caution regarding potential developments on the Middle East front.
The sudden shift in expectations about the path of interest rates, following the shocking labor market data, signaled to the markets that bonds and their ETFs have indeed passed their bottom, with a near-absolute inevitability of a rate cut in September. This, in turn, led to increased inflows into these funds, alongside continued outflows from gold ETFs, deepening the losses of the non-yielding safe haven.
Wall Street’s biggest physical gold ETF saw more outflows this week, with $45 million of investor money leaving the SPDR Gold Trust (GLD) as of yesterday. In contrast, three of the largest U.S.-focused bond ETFs, which manage more than $50 billion in assets, saw inflows of about $550 million yesterday alone.
The drop in bond yields may not help gold reap gains, as Wall Street may shift its focus to fixed-income instruments to exploit yields that could decline further with the expected large rate cut this year. Bond markets are also benefiting from weaker risk appetite in equity markets at the same time.
Far away, the escalation of conflict in the Middle East on various fronts is one of the most important factors that could preserve gold’s gains, as it awaits Iran’s response to Israel.
Iran is amassing its missile force and conducting drills in preparation for the expected response, which its allies may participate in, according to The Wall Street Journal. While the simultaneous attack by Iran and its allies would overwhelm Israeli defenses, which in turn could lead to further escalation in the regional war, according to the Associated Press. All this comes with the negotiating track deadlocked after the assassination of Hamas’s chief negotiator, Ismail Haniyeh, amid Israeli procrastination in an attempt to prolong the Gaza war.
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