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U.S. Treasury yield decline sparks strong gains in both gold and silver

Commentaries & Views

Both gold and silver had significant and strong gains today reacting to longer-term treasury yields declining to their lowest levels this week. Both the 10-year and 30-year treasuries lost approximately 13 basis points. The 10-year Treasury Bond declined from 4.327% to 4.197%, and the 30-year Treasury Bond dropped from 4.410% to 4.283%.

The strong drop in treasury yields was due to a reaction by traders of multiple poor economic reports out of Europe. The eurozone PMI (Purchasing Managers Index) created by combining economic data from the manufacturing and service sectors revealed that activity dropped in August to the lowest level in almost 3 years. An economic report out of the UK showed a similar pattern with the survey revealing that activity was at a 31-month low.

The net result from a drop in treasuries was a strong gain of 3.94% in silver and approximately 1% in gold as precious metals traders reacted to the report out of the eurozone and the UK. Both gold and silver found technical support late last week that resulted in modest gains in both precious metals.          

Recent support in the precious metals across the board is partially based on the CME’s FedWatch tool which is predicting an 88.5% probability that the Federal Reserve will not raise their benchmark Fed funds rate at the September FOMC meeting. However, whether recent support in both gold and silver marks the beginning of a sustained rally or a short-term upside move will be largely influenced by Chairman Powell's speech in Jackson Hole Wyoming on Friday.

While a majority of economic analysts believe that one last quarter-percent rate hike by the Federal Reserve has been largely factored into current values, the length of time, before the Federal Reserve begins a period of rate cuts, is uncertain. This is why market participants are anxious to hear what Chairman Powell brings to the table at the Jackson Hole economic symposium sponsored by the Kansas City Federal Reserve held on August 24 to 26. Chairman Powell will take the stage on Friday, August 25, and deliver a speech on the Fed’s economic outlook.

As of 4:30 PM EDT, gold futures basis the most active December contract is up $19.30, or 1.00%, and fixed at $1945.30.

Silver futures are up 3.92% or $0.92 taking the most active contract month to $24.37.

Lastly, gains in both gold and silver benefited from dollar weakness of -0.17% taking the index to 103.295.

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Wishing you as always good trading,

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