GOLD and SILVER prices rose as Asian and European stockmarkets fell on Tuesday, with gold touching 3-week highs at $1360 per ounce as major government bond prices also fell, driving borrowing yields higher from their recent new record lows.
The Reserve Bank of Australia today cut it main interest rate to a new all-time low of 1.50%.
Futures markets in the US closed Monday putting the odds of a Federal Reserve rate rise to 0.75% at the September meeting at 18%, up from 12% on Friday.
Silver prices also rose, touching 1-month highs at $20.70 per ounce.
European banking shares today suffered a “brutal” drop according to the Financial Times, with Italy’s Unicredit – due to announce half-year results tomorrow – dropping another 5% in Milan after last week’s bank stress test results said the country’s lenders need to raise more capital.
Japan’s Topix index of major shares meantime closed 1.6% lower, and investors also continued to sell down Japanese government bonds following last week’s surprisingly weak new monetary stimulus from the central bank.
The drop pushed up yields, with Japan’s 10-year government bonds offering minus 0.025% per annum – the least negative yield in almost 5 months according to the Wall Street Journal – after prime minister Shinzo Abe’s cabinet confirmed the first $132 billion of a new fiscal stimulus, starting with support for low-income families and new infrastructure spending.
“The 0.2-percentage point gain over three sessions is the biggest move [in 10-year JGB yields] since May 2013,” says the WSJ, “a month after Bank of Japan Gov. Haruhiko Kuroda introduced his first ‘bazooka’ of monetary easing.”
“In view of the continuing low interest rate environment and amid numerous political risks,” says German financial services group Commerzbank’s commodity team, “gold should remain in demand among investors.
“While speculative financial investors are clearly withdrawing from gold, ETF investors are remaining loyal to gold.”
Exchange-traded funds backed by gold ended Monday needing the most bullion in more than 3 years according to Bloomberg, with aggregate inflows above 8 tonnes.
Falling consumer demand in India in contrast – formerly the world’s No.1 private gold buyer – saw imports drop for the sixth month in a row in July, according to analysis from specialists Thomson Reuters GFMS.
“Demand for imported gold fell sharply as discounts [to London quote] were in the range of $50 to $100 per ounce,” says GFMS analyst Sudheesh Nambiath.
Major European government bond prices also fell hard on Tuesday, driving 10-year UK Gilt yields 0.1 percentage points higher to 0.82% per annum while 10-year German Bund yields rose to minus 0.02%, the least negative since mid-July and 16 basis-points above last month’s new record lows.