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Gold Falls Again as Risk Appetite Builds on Trade Hopes

CommoditiesNov 05, 2019 17:01
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Investing.com -- Gold futures finally cracked Tuesday as growing hopes of a U.S.-China trade truce encouraged more and more market participants to move out of haven assets.

Yields on other haven assets such as government bonds rose to their highest in nearly a week, with the 10-Year and 30-Year U.S. Treasury yields both gaining six basis points to reach 1.85% and 2.34% respectively.

Rising yields make non-interest-bearing bullion unattractive by comparison, and gold futures for delivery on the Comex exchange were down over 1.3% by 10 AM ET (1500 GMT) at $1,490.35 a troy ounce, while spot gold was down 0.3% at $1,489.35.

Silver futures were also hit, falling back below $18 an ounce to trade at $17.67, down 2.2% on the day. Platinum futures were down 0.5% at $934.35.

The chances of a rapprochement between the U.S. and China appeared to have increased on Tuesday after reports in both the Financial Times and the Wall Street Journal saying that the U.S. administration may be prepared to annul the September increase in tariffs on Chinese imports, which affected over $100 billion worth of annual imports.

Rising tariffs have been identified as a major brake on the global economy by many including the International Monetary Fund, and their reversal should logically support global growth and reduce the likelihood of any further cuts in interest rates, thereby removing one of the biggest factors behind this year’s rally in gold.

Ulrich Stephan, a strategist with Deutsche Bank (DE:DBKGn), said in a morning note that further cuts will be conditional on “substantially worse economic data” – something that looks less likely in the wake of the strong U.S. employment report for October and an increase in export orders last month, as measured by the Institute of Supply Management’s business survey.

Tuesday’s data, meanwhile, kicked off with the Redbook research survey estimating that retail sales grew some 5.5% on the year in October, up from 4.5% in September.

All this is happening as a high historical price level appears to be discouraging traditionally important marginal buyers. The World Gold Council estimated (in an admittedly largely backward-looking report) that bar and coin investment halved in the third quarter to 150 tons, while jewellery demand fell 16% to 461 tons. At the same time, higher prices encouraged a 10% rise in recycling, meaning that overall supply rose by 4% to 1,222 tons despite stagnant mine output.

Gold Falls Again as Risk Appetite Builds on Trade Hopes
 

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