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BMO, SP Angel: U.S.-China Trade-War Truce Pressures Gold

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Gold hit its lowest level of 2018 early Monday, pressured by news that the U.S. and China have essentially declared a truce on the trade-war front, say BMO Capital Markets and SP Angel. As of 7:38 a.m. EDT, Comex June gold was $6.80 lower to $1,284.50 an ounce and bottomed at $1,281.20. “Safe-haven interest lulled, drawing gold to the lowest level this year after [U.S.] Treasury Secretary Steven Mnuchin announces putting the trade war with China on hold, boosting risk-on sentiment in markets,” says commodities broker AP Angel. Adds BMO: “With the announcement that the U.S. and China have declared an economic truce in trade negotiations, gold prices are under pressure, dropping below $1,290/oz in Asian trading. We do not believe there was much geopolitical premium in gold; however, with a stronger dollar and rising Treasury yields, we would expect some asset allocation outflows.” Global exchange-traded-fund holdings increased by some 313,000 ounces last week, although Friday brought sales of 38,000 ounces of gold and 42,000 ounces of silver, BMO adds.

By Allen Sykora of Kitco News; asykora@kitco.com

 

BBH: Shifting Fed Expectations, Inflation Lift Treasury Yields

Monday May 21, 2018 07:52

Ten-year U.S. Treasury yields have risen 72 basis points due to shifting expectations for Federal Reserve policy and rising inflation, says Brown Brothers Harriman. “The expectations for the effective Fed funds rate at the end of the year, using the January 2019 futures contract, has risen by 37 bp this year,” BBH says. “Headline inflation (CPI) has accelerated to 2.5% y/y [year-on-year] from 2.1% at the end of last year.…Actual inflation and anticipation of a more aggressive Fed can account for the rise in yields.”   BBH says the Federal Reserve “is on the cusp of achieving its mandates,” with its balance sheet being reduced with little sign of disruption to the economy.  “The large fiscal stimulus to an economy growing above-trend and near capacity can reasonably be expected to goose growth and prices,” BBH continues. “Given the U.S. propensities to import and growth differentials with its major trading partners, the external deficit will also likely expand.” Gold traders monitor the Treasury market since rising yields tend to pressure the yellow metal, as has occurred in recent weeks.

By Allen Sykora of Kitco News; asykora@kitco.com

 

MKS: $1,250-Per-Ounce Gold A Possibility

Monday May 21, 2018 07:52

Gold may well face selling pressure on any attempt to reclaim $1,300 an ounce and also could run into selling pressure that pushes it down toward $1,250, says Samuel Laughlin, senior trader with MKS (Switzerland) S.A. Gold began Asia-Pacific trade by giving back some of the late-day gains from Friday as the euro fell below $1.1750 following a bearish close underneath its 55-week moving average last week, Laughlin points out. “We continue to see layered offers extending toward $1,300 and this is likely to cap any top-side movement while the dollar remains buoyant, and recent price action suggests we may see an extension toward $1,250,” he says. As of 7:35 a.m. EDT, spot gold was $7.45 lower to $1,285.45 an ounce.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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