Gold Traders: Keep One Eye On The ECB – Murenbeeld
New York (July 19) Gold investors will want to pay close attention to the European Central Bank’s interest rate decision Thursday and the corresponding press conference, as that could have a major impact on global bond yields, according to one international economist.
In a recent interview with Kitco News, Martin Murenbeeld noted that gold has suffered as a result of higher bond yields, which have been led by a rally in German bonds. The German 10-year bund has seen significant gains in the last few weeks after ECB President Mario Draghi talked about reflationary forces growing in the European economy.
Markets took Draghi’s comments as a hawkish sign that the central bank is preparing to end its monthly bond-purchase program. Yields on German bunds have more than doubled since his comments, rising 30 basis points, last trading at 0.542%, an increase of 54% from its late June lows.
“U.S. bonds are rising not because of what the Fed is doing. U.S. long-term yields are also sensitive to what is happening abroad,” he said.
Since Draghi’s comments on June 27, the yield on U.S. 10-year notes has risen 13 basis points or 6% to 2.268%.
“The ECB has caused a bit of a minor disaster in the European bond markets, as there has been a sharp increase in yields and that has spilled into U.S. bond yields. We are keeping one eye on what the ECB is doing.”
However, some economists are expecting Draghi to walk back some of his hawkish rhetoric at Thursday’s press conference. According to report from Bloomberg, central bank staff are studying stimulus options that could be announced in the fall.
Economists have noted that despite Draghi’s optimistic outlook on inflation, consumer price pressures have been relatively muted, rising 1.3% in June, well under the central bank’s target of 2%.
Analysts pointed out that a drop in global bond yields would be bullish for gold as it reduces the metals opportunity costs as a non-yielding asset.
However, Murenbeeld said that he would not hold gold because of uncertainty around global interest rates, but instead would prefer the yellow metal because of massive global uncertainty.
Despite renewed momentum in global bond yields, gold has managed to reach a three-week high as a result of growing weakness in the U.S. dollar. August gold futures last traded at $1,241.10 an ounce, relatively unchanged on the day.
The U.S. dollar fell to a 10-month low earlier in the week, as investors questioned whether or not President Donald Trump will be able to push through his fiscal and tax reform policies. Meanwhile, Congress continued to fail in its attempts to replace and repeal the Affordable Healthcare Act.
KitcoNews
